Chemical Banking Corp. is going after 401 (k) plan business in a big way, and it is turning to mutual fund companies to help fuel the drive.

To provide corporate clients with a broad selection of retirement-plan options, the New York bank will offer funds from rival companies alongside its own Hanover funds.

Chemical's 401(k) menu will include funds managed by Dreyfus Corp., Federated Investors, and Janus Capital Management.

The approach represents a break with banks' traditional strategy of relying primarily, or even exclusively, on their own funds in 401(k) retirement plans. These popular plans enable corporate employees to set aside a portion of their salaries for retirement, and reduce their taxes by doing so.

Wins Praise

Industry observers said Chemical's strategy has tremendous merit.

"This is something you're going to see more of in the coming decade," said George H. Walper, consulting director at the Spectrem Group, Chicago. "It's a matter of being flexible."

Chemical is responding to the call of the booming 4010c) market. Nearly $1 trillion of retirement investments is up for grabs nationwide, and that figure will continue to grow, analysts say.

Defined contribution programs, including 401(k) plans, place investment decisions in the hands of employees. These programs are becoming increasingly popular alternatives to defined benefit plans, where employers make investment decisions and pensioners receive a set payout.

Strategy's Outlines

The bank plans to make it as easy as possible for these companies to sign on, said Jeremiah F. O'Leary, a senior vice president at Chemical.

Chemical will include shareholder communications and other services to create a "bundled" product that's easy for the companies that sponsor retirement plans to introduce and administer, Mr. O'Leary said.

Chemical has offered recordkeeping and trust services for 401 (k) plans for more than a decade. But the comprehensive package of services became available just this month.

The bank did not disclose how much money it is spending on the project, which included upgrading its reporting capabilities to supply daily pricing and account processing.

The bank has also installed a voice response system, making it easier for plan participants to get account information and to make transfers among their various investment portfolios.

Seeks Long-Term Benefits

The bank acknowledges that it is giving up investment management income by offering outside funds to plan participants.

But the benefits far outweigh this drawback, said Midge Donald, a vice president and product manager at Chemical. "We're responding to sponsors' desire to have different funds to mix and match from."

Retirement plan sponsors will winnow their selections from more than 100 mutual funds, Ms. Donald said. Most sponsors will settle with six to eight funds, she added.

Chemical chose its mutual fund partners based on their performance and their potential alliances with other 401(k) program, Ms. Donald said.

The bank is using Dreyfus even though the company is about to be acquired by a rival, Mellon Bank Corp.

"We started speaking to Dreyfus" before the merger announcement, Ms. Donald said. "We like the fund company and didn't see any reason not to go forward with them."

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