AIM Investment Management has taken advantage of tax-law changes to unveil a 401(k) plan for people who work alone in their own businesses.
The AIM Solo 401(k) is the second such plan created since the Economic Growth and Tax Relief Act took effect Jan. 1. Analysts and executives say the tax advantages, low costs, and higher contribution limits could get entrepreneurs racing to open a 401(k) plan. These plans have for years let employees set aside a part of their salaries before taxes for retirement, and the new law lets people who run one-person businesses do the same.
Suddenly, 401(k) plans are available to the guy who runs a home business, and with the new tax law you are talking about putting aside a considerable sum, said Patrick White, vice president of retirement and education products at AIM.
How much? Two to three times what a self-employed business person could save in any other product, according to Boston-based Pioneer Investments, an AIM competitor in the small-business market. Before the tax-law changes, most small-business owners saved for retirement with a Keogh profit-sharing plan, an SEP, or a Simple Plan.
Jodie Hale, vice president of retirement plan marketing at Pioneer Investments, which started its Uni-K plan for self-employed people in September, said the plan lets people defer up to $40,000 annually. This is an enormous amount for a flexible contribution plan, she said. It is significantly, significantly more than any other retirement plan option for small businesses.
She added, The smallest of the small businesses have always wanted a 401(k) plan, but it never made sense. The cheaper plans did the job just fine. Now suddenly in 2002, we can sell this product for $100.
Pioneer, which has been marketing its product since September, began selling on Jan. 2. Ms. Hale said the company, a unit of the Italian bank UniCredito Italiano, has been promoting the product to independent advisers, broker-dealers, and accountants in road shows nationwide.
AIM said it intends to distribute its plan through banks, financial advisers, and wire houses. We have always had a niche with banks and with small-market plans, said AIMs Mr. White. We are optimistic we will be able to add a lot of value to a lot of clients with this product.
Geoffrey Bobroff, president of Bobroff Consulting Inc. in East Greenwich, R.I., said that, though the product is attractive, he is unsure about the demand for it.
It is a nice product, but you are really left asking the question: Is there enough of a reason for someone with a retirement plan in place to switch? he said. Are there really enough solo business owners looking for this?
Ms. Hale said that, though some mutual fund companies are taking a wait-and-see attitude before diving into distribution of it, the product certainly has a market. Though most self-employed business people do not contribute to retirement plans until the fourth quarter, she said, Pioneer will begin to see assets as people roll over products beginning in the next week or so.
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