After years of losing market share to mutual fund companies, banks are emerging as solid competitors in the 401(k) plan business, according to an expert on the retirement plans.
Banks administered $128 billion in 401(k) plan assets at yearend 1993, up from $116 billion in 1992 and $74 billion in 1987, said Rebort Wuelfing, president of Access Research, Windsor, Conn. The plans, which corporations may offer their employees, enable workers to defer payment of taxes on a portion of salary earmarked for retirement.
While banks' 1993 market share slipped one percentage point, to 27%, Mr. Wuelfing said he sees clear signs that the earosion is ending. That is important because assets of 401(k) plans are expected to swell to $1 trillion by the turn of the century, up from $475 billion now.
Banks have found new ways to increase their presence in the 401(k) business, such as adding "brand name" funds to their own offering, Mr. Wuelfing said.
"We're seeing an increase in marketing efforts in their area," he said. "We believe that more banks will be entering into alliances with mutual funds."
An alliance between Bankers Trust New York Corp. and Charles Schwab Corp. has received the most attention, but Mr. Wuelfing ticked off others:
* State Street Boston Corp. and General Electric Co. teamed up in January to offer GE mutual funds through State Street's individual retirement plans.
* Last month, Chemical Bank decided to let its 401(k) clients choose among mutual funds managed by its competitors, as well as its proprietary Hanover funds.
State Street, Chemical, and Bankers Trust together hold more than 10% of the 401(k) market, Mr. Wuelfing said.
Aggressive Regional Banks
While the large banks have entered the game in a big way, regional banks have been the most aggressive of late, he added. Bankers agreed that a wide product selection is important.
"Those who sell the most families of funds are going to be the winners in this market," said Patricia Russell senior vice president of Riggs Bank in Washington.
Ms. Russell, who heads up the retirement plans department for the $4.8 billion-asset bank, offers the bank's proprietary RIMCO funds, as well as funds by Federated Investors, Pittsburgh. Riggs administers $2.4 billion of retirement plan assets.
Simple economics drives most of the relationships between banks and mutual fund companies, according to a marketing executive at Federated, who did not want this name used.
"It's not inexpensive to roll out these funds," the executive said. cI think that most of them are doing it on their own, but later look to round out their offerings with outside funds."
Banks had not focused on the 401(k) plan market until recently, Mr. Wuelfing explained, primarily due to the wave of consolidation and streamlining that had diverted much of banks' attention and resources to other areas.
"The market was growing faster than the banks were," said Mr. Wuelfing. "But if you go back you'll see that banks had a lot more to deal with at the time."
