(Summary) Pension Systems Corporation created the patented run-it-yourself 401k Easy, heralded by
The Wall Street Journal "...allows small businesses to manage 401k plans as easily as a consumer navigates family finances with programs such as Quicken."
Reprinted from THE WALL STREET JOURNAL.
Web Helps Small Firms Start 401(k)s
YOUR MONEY MATTERS
By JEFF D. OPDYKE
Staff Reporter of THE WALL STREET JOURNAL
Tom Hendricks's employer recently adopted a 401(k)-retirement plan for him and his colleagues.
Big deal, you say? Well, actually, it is. Mr. Hendricks and the 13 managers who oversee trust-fund operations
for a California union have never had access to the hugely popular retirement accounts because of the expense
and complexity of running them.
Now, though, cheap and efficient technology is changing those notions. Easy-to-use software and low-cost,
back-office support - much of it available online - are opening retirement-savings benefits to an estimated 27
million small-business workers who don't have retirement plans. It's also allowing companies with inflexible
and meager plans to upgrade to more appealing, full-blown 401 (k) s by pushing down administrative costs
and challenging the idea that small-business owners can't manage the rule-bound accounts.
"There's been a whole lot of mumbo jumbo used in this industry to create a Tower of Babel that running a
401(k) is tough," says Jim Gilbert, who has spent 15 years in the industry designing and overseeing retirement
plans. Mr. Gilbert, president of 401(K) Pro Inc., Los Angeles, recently introduced a software program called
401(k) Easy - which allows small businesses to manage 401(k) plans as easily as a consumer navigates family
finances with programs such as Quicken. "This is not brain surgery," he says.
Mr. Hendricks, who heads up the administrative office for the Southern California International Brotherhood
of Electrical Workers-National Electrical Contractors Association trust fund, began looking for a 401(k) for
the managers on his staff, who are not covered by the union or electrical employers. (The trust-fund office is
the intermediary between workers and employers.) But plans administered by outside suppliers were so
expensive - $17,000 in one instance - "that I shut the book immediately," Mr. Hendricks says. Some providers
"didn't want to talk to us when they found out how small we were." Instead, he found the answer to the group's
retirement needs on the Internet for less than $1,000 - in Mr. Gilbert's program. Now, his office controller,
who has no background in back-office plan administration, is running the retirement program for the
group, which is one of two test sites for 401(k) Easy.
Big financial-services firms are jumping into the game, too, setting up and administering 401(k) s at prices
small businesses can afford. In October, Boston's giant Fidelity Investments introduced "e401k," the
industry's first Internet-only 401(k)- plan. Safeco Corp., a big Seattle insurance and mutual fund firm, plans
soon to introduce its own Internet option for small-business 401(k) s. Small shops are "the new opportunity" in
401(k) s, according to Steven Sundberg, an assistant vice president at Safeco.
Fidelity's e401k is geared specifically for businesses of between five and 50 workers. It allows employers
such as Giage Ltd., a 26-person Cincinnati software firm, to build a retirement plan directly online, and
requires that employees access accounts only over the Net. The cost: a $750 set-up fee and yearly charges of
$1,750, plus $20 a participant. By comparison, the average 401(k) can cost $5,000 a year or more - a price
"that would have been a ‘preventer' for us," says Christopher Baucom, chief financial officer at Giage.
Fidelity also handles onerous compliance tests for an added fee. With a smaller, less-flexible 401(k) plan that
Reprinted from THE WALL STREET JOURNAL Giage once had, one Internal Revenue Service form
took Giage " a whole day to complete and was just a mess" says Mr. Baucom. Fidelity entered the market because
internal surveys showed that 401(k) s "haven't been affordable on the very small end," says Peter Smail,
president of Fidelity Institutional Retirement Services Co. "That end is grossly underserved."
Federal lawmakers tried to promote broader retirement coverage for small-business employees several years
ago by creating simplified retirement plans. The legislation reduced or eliminated some of the most onerous
rules, but imposed on employers certain contribution mandates.
For example, Collins, Butler & Co., a 24-person accounting firm in Enid, Okla., opted against a simplified
Safe Harbor 401(k) because it required the firm to contribute 3% of income to a plan for each employee - a
costly proposition. A traditional 401(k) doesn't require that, so long as certain tests are met.
Instead, John Garrison, managing shareholder, turned to 401(k) Easy after spending the last three years
running the company's plan in-house with a homemade spreadsheet. He expects the new software will cut his
401(k)-administration time to less than an hour a month from about five hours.
"A lot of companies are going to look at something like this," Mr. Garrison says, "and see that there's finally a
good way to administer a 401(k) plan at a reasonable cost."
The idea of businesses managing their own 401(k) plans in-house, however, doesn't sit well with some
financial advisers. "People who have tried [to run their own plans] have botched them up pretty badly," says
Richard Kaplan, chief executive officer at Benefit Planning Inc., a Marina Del Rey, Calif., employee-benefits
consulting firm that administers 401(k) plans for employers. Indeed, mistakes can prompt IRS "penalties that can
be severe," says David Wray, president of the ProfitSharing/401(k) Council of America, a Chicago
trade group. An employer mistake, he says, can nullify an entire plan and impose immediate tax burdens on all participants.
Of course, complicated rules and high fees aren't the only reasons many small companies have spurned 401(k)s.
"They're too constrained financially, or the owner wants a pension for himself, but doesn't want to make
matching contributions for employees," says Annika Sunden, associate director for research at the Center for
Retirement Research at Boston College.
Attitudes are changing, though. A recent survey by Spectrem Group, a San Francisco financial-services
consulting firm, found that 167,000 small businesses, representing roughly 1.6 million workers, expect to add
a retirement plan in the next two years. In today's tight labor market, Ms. Sunden says, a growing
number of small businesses are deciding that they can't afford not to offer retirement benefits if they
want to hang on to hard-to-replace workers.
Reprinted from
THE WALL STREET JOURNAL
We
Hold the Patent on Its Highly Regarded Run-It-Yourself 401k Technology