Deep inside the minimum wage law is a raft of provisions that could spell good news for bank investment products programs.
In addition to allowing tax-free conversions of common trusts into mutual funds, the law President Clinton signed Wednesday includes a host of lesser provisions that could provide a windfall for banks. Chief among these are provisions that expand popular tax-deductible retirement plans.
For instance, bankers may soon be able to cash in on provisions that help small businesses open retirement plans modeled after 401(k)s; allow nonprofit groups to offer 401(k) plans; and raise the contribution limit for nonworking spouses to individual retirement accounts from $250 to $2,000.
Several bankers said one of the most interesting provisions is Simple - the saving incentive match plan for employees. It caps worker contributions at $6,000 per year and mandates employer matching for up to 3% of compensation.
The Simple scheme offers less paperwork and fewer compliance headaches than conventional plans. Companies with less than 100 employees can begin using the plan Jan. 1.
Bankers are already working to adapt their pitches for small companies' retirement benefit business.
At Unionbancal Corp., a pilot program begun last year to test a lean 401(k) plan using proprietary funds for small companies will probably be reworked.
"We'll look to rethink the product in terms of the new legislation," said R. Gregory Knopf, managing director for proprietary mutual funds.
The minimum wage law presents new options, Mr. Knopf said, and those will be blended with feedback from the test marketing through 13 branches of the simplified 401(k) plan.
Early next year, Union Bank hopes to roll out a revised retirement plan for small businesses, he said.
The minimum wage law opens up a new business line for banks: selling 401(k) plans to nonprofits. Previously, nonprofit organizations, with few exceptions, could use only more restrictive plans named for section 403(b) of the Internal Revenue Code.
"We've run into several opportunities in the past that would be excellent candidates for 401(k) that were not set up with a 403(b) plan," said Michael Allen, senior vice president at Trustmark National Bank, Jackson, Miss. The new law "will make it a lot easier to go after those kind of accounts now," he said.
Other bankers agreed that nonprofit groups - especially foundations - make an attractive niche market for selling mutual funds wrapped inside 401(k) plans.
"We've got a lot of banking relationships with them already," said Kathleen Dennis, senior vice president for mutual funds at KeyCorp, Cleveland. "It's a natural next step to do."
But whether hawking 401(k) plans to nonprofit business will create a profit for banks strikes one expert as wishful thinking.
"I don't think there will be a rush or even a trickle of groups that currently offer 403(b) to offer a 401(k) plan ... as a replacement," said Ronald Bush, vice president of Access Research, Windsor, Conn.
There are very few nonprofits of any size that don't already have 403(b)-type retirement plans, he added.
There seems to be little or no controversy, though, about raising IRA contribution limits to $2,000 for nonworking spouses.
That's an easy add-on business, said Trustmark's Mr. Allen. "We have the products, and it's an attractive opportunity," he said.