Ohio's Fifth Third Bancorp. is joining a growing number of banks offering retirement plans for employees of their small-business customers, modeled after 401(k) plans.

The goal is to make it more affordable for small businesses to provide such plans for their workers.

"The expense of a 401(k) plan made it out of reach for many small businesses," said Sandra Lobert, vice president of institutional trust services for Fifth Third.

Banks such as Fifth Third want to get into the retirement business for the potentially lucrative stream of fee income from a market segment that is expected to increase dramatically in the next five years.

KeyCorp, Mark Twain Bancshares, and the mutual fund giant Fidelity Investments have all designed new programs in the last year to sell retirement plans to small-business employees.

The bulk of small businesses with less than 100 employees have no retirement plans, largely because they have fewer employees to bear the cost of maintaining and administering the plans.

The Cincinnati-based bank's plan was created after Congress passed legislation this summer that simplifies the technical and reporting requirement for small-business retirement plans, beginning Jan. 1.

Called a savings incentive match plan, or Simple, the program mirrors 401(k), or Individual Retirement Account, plans but permits smaller contributions and carries a stiffer penalty for early withdrawal.

The $20 billion-asset Fifth Third estimates that 40,000 businesses in the Cincinnati-area would be interested in the bank's Simple retirement program, which will be introduced in January in Ohio, Indiana, Kentucky, and Florida.

Contributions to the retirement plan will be invested in Fifth Third's family of Fountain Square mutual funds. The bank's trust department has $93 billion of total assets under management.

"By not offering outside mutual funds, we keep the price down and make it affordable for more small businesses," Ms. Lobert said.

The Simple program allows employees to defer as much as $6,000 of their pretax pay, which employers match with contributions to the retirement plan. The early withdrawal penalty is 25%.

By contrast, the 401(k) plans allow employees to contribute as much as $9,500 of their pretax pay, and the IRS penalty is 10% for an employee's early withdrawal of funds.

Beginning in 1997, small-business owners with less than 100 employees have three options for contributing to the employee retirement plan.

Employers can contribute amounts equal to 3% of pay of all participating employees, 2% of pay for all eligible employees, or 3% of pay for eligible employees for three of every five years.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.