Fiducitation:
e-401(k)
Author: John Munson
© 2001 by Fiducite.com, Inc. Date: October 22, 2001
Fiducitation: A synthesis of Internet resources,
including:
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of the topic written by Fiducite research specialists,
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qualified sources on the Internet.
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The nation's 401(k) marketplace has experienced impressive growth over its 20-year history. There are currently 41 million investors and 2.5 trillion in assets. Historically, small and medium-sized businesses have found it difficult to offer 401(k) benefits to employees due to the tremendous time and cost burdens associated with administering the plan. But with the inception of the e-401(k) by Fidelity in January of 2000, the industry as a whole is poised for more explosive growth, especially within the small and medium-sized plans. The web-based 401(k) offers several compelling advantages, including:
· relatively low fees,
· automated enrollment,
· loans,
· government compliance,
· an enlarged investment choice,
· financial analysis,
· and online advice.
Fidelity was first to market in January 2000 with an all-Internet 401(k) and now leads this product category with 1,200 plans in place. MassMutual launched Persumma in July 2000 with beta-test clients and, in January 2001, began officially marketing its 401(k) product. To date it has 12 plan-sponsor clients, including at least two beta-test firms. Brian E. Boyle financed and launched GoldK in July 2000, and since then has amassed 80 plan-sponsor clients, not including 240 clients of a benefits consulting and record-keeping company that GoldK recently acquired. Many others, such as Schwab, are following suit, some of which are cited under the section “Vendors”.
The difference among these e-401(k) vendors boils down to price, service, and investment options. Fidelity Investments offers participants as many as 26 Fidelity mutual funds and is supported by record-keeping and transaction systems that have a proven track record and are Web-enabled for both participants and sponsors. The GoldK start-up distributes about 15 mutual fund options through third-party financial advisors and brokers, and offers free Web-based record-keeping and administrative services to both them and end users. Meanwhile, MassMutual's Persumma Financial uses a fee-for-service approach, offers sponsors and participants several hundred funds from which to choose, and provides screening and selection advice for each client.
But how sustainable is this newly fashioned 401(k)? According to Tower Group’s Dennis Ceru, “This is a model that incorporates a couple of things essential to longevity: One, it is, at heart, business process reengineering at its best. It uses enabling technology to do today something you did yesterday better, faster, cheaper. The second thing is it extends the reach of the 401(k) dramatically... It is available-anywhere-anytime to every man and woman enrolled, who can participate in the plan equally.”
Table of
Contents:
Market Size & History of Online 401K Plans
The Promise of Web-Powered 401(k) Plans (July 2001)
Annotation: This article
from Strategic Finance discusses the size and history of this disruptive
product, and includes an analysis of the largest players Fidelity, Persumma Financial, and GoldK.
Clip: To sellers of new electronic 401(k)s, the low end of the market is virgin territory. Only 35% of companies with fewer than 500 employees offer a 401(k), and only 15% of firms with less than 100 employees do, according to TowerGroup and the Profit Sharing/401(k) Council of America. This low penetration rate is fairly remarkable considering that the 20-year-old 401(k) market today covers 41 million workers who have $2.5 trillion in these plans. For most American workers, it’s their largest liquid financial asset, second only to the equity in their homes. The 401(k) has also helped spawn more mutual funds than there are stocks and turned mutual fund companies into complexes. But the high costs of selling, record keeping, and administering 401(k)’s have kept most providers focused primarily on corporations with vast numbers of employees, according to a TowerGroup report.
· Fidelity was first to market in January 2000 with an all-Internet 401(k) and now leads this product category with 1,200 plans in place
· MassMutual launched Persumma in July 2000 with beta-test clients and, in January 2001, began officially marketing its 401(k) product. To date it has 12 plan-sponsor clients, including at least two beta-test firms.
· Brian E. Boyle financed and launched GoldK in July 2000, and since then has amassed 80 plan-sponsor clients, not including 240 clients of a benefits consulting and record-keeping company that GoldK recently acquired.
Source: http://www.mamag.com/strategicfinance/2001/07l.htm
Cached
File: 
Online 401(k) Plans Altering Market (January 2001)
Annotation: This article
is much like the previous one, but adds statistical research by segmenting the
market and adds making forecasts.
Clip: Ceru predicts the nation's 401(k) assets will double to $5 trillion by 2005, with the number of workers who invest rising to 68 million from 41 million. He expects companies with fewer than 500 employees to be a big part of that, as 65 percent of them move to offer plans, up from 35 percent today.
While more than 85 percent of companies with at least 100 employees offer 401(k) plans, the numbers drop off dramatically at smaller firms, according to TowerGroup, a Needham research firm. Only 15 percent of companies with two to 99 employees offer a ''self-directed'' retirement plan like a 401(k), and that's true of start-ups as well as established entities.
Source: http://www.globe.com/business/stories/011601_401k.html
Cached File: 
e-401(k)" Will Be A Boon To The Under-Served Small Business Market
Annotation: December
2000
Clip:
· "e-401(k)" is now emerging as a significant disrupter to the current defined contribution industry. Just as online brokers forced a sea-change across the universe of full-service brokerages, e-401(k) is poised to significantly reduce the expense of sponsoring a 401(k) plan, making the vehicle more accessible to all employers regardless of company size.
·
TowerGroup believes that by 2005, 65% of U.S. companies
with less than 500 employees will sponsor 401(k) plans–up from just 35% in
2000. This growth will be largely driven by new e-401(k) initiatives.
Source:
http://www.cooperkatz.com/new/towergroup10.shtml
Cached File:
To see original
research note from Tower Group: http://www.towergroup.com/.asp
e-401(k)s Set to Grab $2 Trillion in Assets in 4 Years
Annotation: This forecast comes from Pensions & Investments
v29 no6 p 46 Mar 19, 2001
Clip: The electronic 401(k) plan, or e-401(k), could
disrupt the defined contribution industry and reach $2 trillion in assets by
2005, according to a study by Towers Perrin. E-401(k)s are developed and
serviced online. Some service providers offer more plentiful investment options
for e-401(k)s than those offered by traditional providers. According to Towers
Perrin, e-401(k) services include electronic business-to-business
clearinghouses that are designed to link plan sponsors who want 401(k) services
with providers of those services. The window of opportunity for new e-401(k)
providers is expected to close within five years. [0133699]
Source:
http://www.ifebp.org/prez29.asp
(Can be found half way down page) Cached
File: 
Search401k
Clip:
Search401k guides you through 401(k) product comparisons in 15 minutes or less.
It's an easy and efficient way to request customized proposals and Due
Diligence Reports. Search401k also provides an independent rating of 401(k) products that identifies the level of
product service. Search401k can offer completely up-to-date and accurate
expense and performance information because of our unique partnership with
401(k) providers.
Source:
http://www.search401k.com/htm/spo/spo_res_res.asp
Cached File: 
401(k) Investors Are Going Online (
Clip: But the face of 401(k)s is changing as investors can
access their company-sponsored accounts on the Web. On top of that, more
employers are offering online alternatives to the traditional 401(k) that is
typically managed by a large fund company like Vanguard Group or Fidelity
Investments.
Source:
http://money.cnn.com/2000/09/11/pensions/q_retire_401k/
Cached File: 
Trends & Experience in 401(k) Plans
Self-Directed Brokerage Accounts and Fund Windows in 401(k) Plans 2001
Clip:
- Over half of plans
(55%) provide participants with Internet access to their 401(k) plan
information. Another 27% plan to provide access within the next 18 months.
·
Over the past decade, a growing number of 401(k) participants
expressed a desire for greater investment control over their contributions.
Employers' attempts to satisfy this demand have led to the self-directed
brokerage account option and, to a lesser extent, the fund window.
Source:
http://was.hewitt.com/hewitt/resource/rptspubs/subrptspubs/trends_index.htm
Cached File: 
Source:
http://was.hewitt.com/hewitt/resource/rptspubs/subrptspubs/self_direct_brokerage.htm
Internet Access Increases Stock Trading: Evidence from Investor Behavior in 401(k) Plans
Annotation: This article
highlights the findings of a report done by the National Bureau of Economic
Research published in September 2000.
Clip: We analyze the impact of a Web-based trading channel
on the trading activity in two corporate 401(k) plans. Using detailed data on
about 100,000 participants, we compare trading growth in these firms to growth
for a sample of firms without a Web channel. After 18 months of access, the
inferred Web effect is very large: trading frequency doubles, and portfolio
turnover rises by over 50 percent. We also document several patterns of
Web-trading behavior. Young, male, and wealthy participants are more likely to
try the Web channel. Frequent traders (before Web introduction) are less likely
to try the Web. Participants who try the Web tend to stick with it. Web trades
tend to be smaller than phone trades both in dollars and as a fraction of
portfolio. Short-term' trades make up a higher proportion of phone trades than
of Web trades.
Source:
http://www.nber.org/digest/feb01/w7878.html
Cached
File: 
GoldK
Annotation: This company is one of the first players in the e-401(k)
market. What separates it from Fidelity’s e401K is the low price (supposedly
free) and its vast mutual fund window. As of September 2001, GoldK had signed up a number of
major fund companies for its online 401(k) platform, including Janus, American
Century Investments, INVESCO Funds, OppenheimerFunds, Deutsche Asset Management,
Credit Suisse Warburg Pincus Funds, and Franklin Templeton Investments.
Clip: Founded in 1999 by a team of financial and technology experts, GoldK is using Internet technology to reengineer the way retirement plans are created, distributed, managed, supported, and used. Through XML, the Web programming language, GoldK delivers "straight-through processing" to retirement plan sponsors, which allows for all aspects of adopting, maintaining, and participating in a plan to take place online.
Source:
http://corporate.goldk.com/about.htm
Cached
File: 
Fidelity Web 401(k) soars
Annotation: In this
article, which was published in CNN, Fidelity anticipated over 500 plans to be
sold in its first year
Clip: "In today's competitive job market, many small
firms are finding it absolutely necessary to offer a 401(k) plan in order to
more successfully attract and retain talented workers," said Peter J.
Smail, president of Fidelity Institutional Retirement Services. "For
technology savvy companies, e401k is one of the most cost-efficient ways to
offer this important employee benefit."
Source:
http://money.cnn.com/2000/02/09/pensions/q_retire_fidelity/
Cached File: 
Link (To
learn more about Fidelity’s e401(k) product go directly to the company web site
below): http://www.fidelitye401k.com/gnrc/e401k_learn.asp
Persumma Financial
Annotation: This company
is an off shoot from MassMutual, an insurance company.
Clip: The firm is described as an online 401(k) provider,
yet unlike other e-401(k)s, which are targeting the small plan market, Persumma
is targeting large plans.
Source:
http://www.mfcafe.com/pantry/tb_0201.html
Cached
File: 
Schwab Adds e401k Partner
Annotation: October 19,
2001
Clip: Schwab Retirement Plan Services has added MyOnline401k.com to its partners available to its network of 10,000 Schwab advisors. The product is run by Retirement Alliance, a Manchester, New Hampshire based third-party administrator.
Source:
http://www.401kwire.com/scripts/401kwire/paper/Article.asp?ArticleID=3656
Cached File: 
Emplanet
Annotation: This
document.
Clip: Created in early 2000 by accomplished leaders in the
401(k) industry, Emplanet, Inc. is revolutionizing the 401(k) business by
delivering the industry's first fully automated, low-cost e401(k) for financial
institutions and businesses. Emplanet works closely with institutional partners
and businesses to develop customized Internet services that are available in as
little as 30 days. Moreover, Emplanet provides ongoing technology development
and support to ensure that its private-label partners are delivering
best-in-class functionality, security and scalability to members. Emplanet's
unique participant services and interactive Web format for plan participants
ensure maximum participation in retirement savings plans. Venture-backed by Oak
Hill Capital Partners, Emplanet is headquartered in Westborough, Mass.
A recording of Curtco's Internet Broadcast Network's (CiBN) "Mark
to Market" program with host Mark Davis; Guest: Doug Manchester,
President and CEO of Emplanet. February 26, 2001 This interview with
Emplanet’s President and CEO is about 1 hour long, and begins after the first 4
minutes.
Source:
http://www.emplanet.com/app/main/sales/mission.jsp
Cached File:
Impact 401K
Annotation: This page
provides a useful comparison to Fidelity’s e401K and the EZ401K product.
Clip: Not all 401(k) plans marketed on the Internet
are created equal. Impact401k offers comprehensive services and gives you and
your employees tremendous cost savings over the life of the plan. There's no
outsourcing or third party administrator. See for yourself the Impact401k
difference.
Source:
http://www.impact401k.com/pension/compare/compare.shtml
Cached File: 
EZ401K
Clip: ez401k.com - the
Internet's first and leading 401(k) company - offers Instant Plan Setup on the
Internet. Established by experienced retirement plan professionals, ez401k.com
puts plan design choices on the user's desktop and enables employers to start a
401(k) plan online within minutes.
Source:
http://www.ez401k.com/ Cached
File: 
Decimal, Inc.
Annotation: Decimal,
Inc. launched its web based 401(k) product in October 1999, and as of June 2001
has acquired its 100th customer.
Clip: Decimal, Inc. leverages the power of the
internet to offer small businesses a new breed of Web-based retirement plans.
Through our first solution, The Online 401(k), we have created a way to streamline
processes, eliminate redundant tasks and paperwork to provide immediate access
to consistent information - in the end, passing on the savings to small
businesses and their employees. Unlike
mutual funds companies or insurance companies, we are NOT in the business of
pushing our own proprietary mutual funds through an in-house 401(k).
Source:
https://www.theonline401k.com/ Cached
File: 
Moran and Associates, Inc.,
Annotation: This company
web site also provides an excellent overview of the various retirement plans.
To view it you must go to http://www.moranassociates.com and then click
on Retirement Plans.
Clip: Ease of
use, decreased paperwork, savings of 50% on our normal base fee and additional
discounts on other plan administration fees are the advantages of the e401K
Retirement Plan.
Source:
http://www.moranassociates.com/e401K.htm
Cached
File: 
401(k) Pro, Inc.
Annotation: 401(k) Pro, Inc. is a software firm, not a plan administrator.
Clip: 401(k) Pro, Inc. expands on parent company's full-service
401(k) advances with patented software-based "Run-It-Yourself"
401(k)’s for small businesses. 401(k)
Pro, Inc. built the now-patented run-it-yourself systems from the internal
system developed and employed by its full-service 401k affiliate, Pension
Service Associates (PSA). PSA has been providing reasonably-priced, quality
full-service 401k plans to small and midsize businesses since the mid 1980's.
Source:
http://www.401keasy.com/pressroom/pressfrset.html
Cached File:
PyramidVision™
Annotation: This company is a software vendor that entered the
e-401(k) market in August of 1998 by enabling Norwest's 401(k) Plan
Participants to Access Accounts via Internet.
Clip: PyramidVision™ is a fully integrated suite of leading products for the retirement industry. It gives plan providers a competitive edge by delivering proven, scaleable turn-key products that are ready to install. The suite addresses many of the most common needs of today’s plan providers including Web-based tools for participants and sponsors, e-401(k) products, and solutions for call centers and voice response systems.
![[PlanOffice Diagram]](./Fiducitation%20-%20e401K_files/image030.gif)
Source:
http://www.pyramidonline.com/flash/products_offerings.html
Cached File: 
401Konnect
Clip: About 401Konnect
401Konnect, Inc. is a privately held firm headquartered in Palo Alto, CA, dedicated
to providing a frictionless 401(k) supply chain through a Web-based marketplace
for brokers and benefits consultants. 401Konnect is led and managed by a senior
team that includes the leading 401(k) researchers and advisors, as well as
veterans of the financial industry and Internet development world. Through the
free 401konnect.com site, brokers and consultants can match and compare
retirement plans in detail to meet their clients’ preferences, and the site
automates the RFP process, saving time and money for brokers and plan vendors.
For more information on 401Konnect, please visit the company information
section of www.401konnect.com.
Source: www.401konnect.com Cached
File: 
401kExchange.com
Annotation: Business Week Magazine hailed 401kExchange as the “J.D.
Power & Associates of the pension plan industry,” while InfoWorld Magazine
selected them as one of the “Top 100 E-business Innovators in the U.S.”
Clip: 401kExchange.com is a five-year-old Web-based business-to-business exchange and due diligence research resource for the 401(k) plan market and its principal market segments; Employer Plan Sponsors, Retirement Advisors (plan buyers) and Plan Service Providers (plan sellers).
This dynamic business-to-business Exchange provides all of the research, Proposal Service, Plan Analysis; related information and a neutral exchange platform for 401(k) plan buyers and sellers to meet and conduct business more efficiently in an online environment at no cost.
Source: http://www.hrhub.com/storefronts/401k.html
Cached
File: 
Source: http://www.hrhub.com/401KShopperO
401(k)Hits the Internet
Clip:
· "The 401(k) business has also been slow in adopting the Web as an information and distribution channel," Lanman says. "But in the last 12 to 24 months, we have seen an explosion in the use of the Web by 401(k) service providers and broker-dealers to not only advertise wares but to deliver products on a direct and indirect basis," he adds.
· While investors have certainly grown smarter, the 401(k) product sales sector remains broker-driven. But, increasingly, online 401(k) services firms are finding that they not only satisfy plan sponsors and their investors, but also financial intermediaries.
· Consequently, brokers and advisors have become a big target for companies like 401Konnect. "Eighty percent of 401(k) plans cater to small-to-medium size businesses, up to 1,000 heads," Gilbert says. "And 85% of those plans are sold by brokers/advisors. So the big Web value for us is the ability to deliver information effectively and cost effectively to financial intermediaries."
Source: http://www.collectionsworld.com/news/051501_4.htm Cached
File: 