Banks in the retirement plan business are beginning to feel the impact of a recent U.S. Labor Department investigation into how employee contributions are safeguarded.

Though no plan administrators have been implicated in any wrongdoing, some are taking pains to assure 401(k) participants and their employers that their retirement savings are intact.

"We've already sent out a letter (to plan participants) explaining the process and procedures in place so that this doesn't happen to their plan - we have a clean story to tell," said Laurie B. Nordquist, vice president and business manager for Norwest Employee Benefit Services.

Minneapolis-based Norwest, which manages about 1,800 401(k) plans, has received only a handful of calls from plan participants about the probe.

On Nov. 21, the Labor Department announced it was investigating 303 companies suspected of misusing money that should have been appropriated for employees' 401(k) retirement savings plans.

As a result, Norwest has put its customer service representatives on alert and briefed them in the event of further inquiries.

The retirement plan market is one of the fastest-growing areas of concentration for banks in recent years. There are an estimated 267,000 401(k) plans in the U.S. containing $640 billion, 22% more than last year, according to Access Research, Windsor, Conn.

But the estimated 250 to 300 banks in the 401(k) business have seen their share of the market decline from 28% in 1993 to 22% last year, according to Access, and they have been stepping up efforts to capture more of the pie.

Some bankers and observers say fallout from the government's investigation has just begun and will clearly have some lasting effects, perhaps even benefiting banks in the long run.

Already some banks that administer 401(k)s are planning to boost the amount of education given to employees participating in plans the banks manage.

"We don't want to expose ourselves to any undue liability, so we will probably increase our employee communication," said Gregory A. Smith, a vice president and trust officer for Star Bank, Cincinnati.

Mr. Smith said the bank may send out a mailing with its next batch of monthly statements explaining to participants that 401(k) plans its administers are more carefully monitored than those troubled retirement plans now under federal scrutiny.

That's because most banks, including Star Bank, are also trustees of the 401(k) plans they manage. A trustee makes sure that money is transferred from an employer's account to a trust before being invested.

"You'll find that problems often stem from companies that act as their own trustee, or specify an individual to do it," said Gary Jenkins, a vice president and counsel for State Street Bank and Trust Co., Boston.

He added that "there is a real temptation when you have that control over the money and when the cash flow gets tight, to say well we won't make this contribution this week."

Indeed, many of the firms being investigated by the federal government apparently used some of the employee money earmarked for 401(k) plans to help cover business costs. Another eight companies are suspected of outright theft.

F. Jefferson Bragdon, a corporate counsel specializing in employee benefit plans for Federated Investors, Pittsburgh, said banks can benefit from the current publicity surrounding the case.

"It ought to be a plus for the banks," said Mr. Bragdon, whose company helps banks set up and market their own 401(k) programs. "When the bank is trustee, these things should never happen."

Even so, while banks may grab hold of the extra fees that come from trusteeship, some will have to shell out more money to enhance their record keeping to make sure problems do not arise.

Many bankers and plan administrators agree that employees who have access to the value of their 401(k) investments on a daily basis are more likely to catch problems sooner.

Right now, however, some banks use quarterly valuation, which can cost about $20 for each person participating in a 401(k) plan, compared with the more costly daily valuation, which can run between $25 and $30 a head.

"There is no question that banks are having to move to daily valuation because of market pressures. It's what the people are demanding," said Adele Langie Heller, director of defined contribution services for RogersCasey, a consulting firm in Darien, Conn.

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