Kemper Financial Services is upgrading its retirement plan services in a bid to pick up more business from banks.

The Chicago-based mutual fund company plans to introduce early next year a record-keeping system that would enable banks that use Kemper's 401(k) plan services to add proprietary mutual funds to the investment mix.

Banks that now use Kemper's turnkey 401(k) program can offer only Kemper funds.

Kemper officials are promoting the system, dubbed Kemflex II, as an attractive way for banks to build the assets in their proprietary funds.

That's because 401(k) plans draw a steady flow of assets from the corporate employees who use the plans to save for retirement.

Terrence P. Cunningham, national sales manager for Kemper's financial institutions group, said the service has already been a key in closing deals with banks.

45 Banks Signed Up

So far this year, Kemper has signed up 45 banks for its 401(k) services and has 25 more in the pipeline.

The goal is to get 100 new banks this year, Mr. Cunningham said, "but I'd be happy with 75."

Signet Banking Corp.'s brokerage unit, which already uses Kemper's turnkey 401(k) program, may add its proprietary products to the system, said Michael Guilsher, sales manager at Signet Financial Services, Richmond, Va.

Mr. Cunningham said the addition of Kemflex II will "raise the bar," forcing competitors to upgrade their technology, too.

Although Kemper is touting Kemflex II as the latest wrinkle in the 401(k) business, other companies have beaten it to the punch.

Federated Investors' record-keeping system, for example, has been able to include banks' proprietary funds for two to three years, said E. Thomas Johnson Jr., vice president in charge of sales and marketing at the Pittsburgh-based company.

Banks that have private label products want their funds offered as part of their 401(k) program, Mr. Johnson said.

Record-Keeping Ability

Still, bankers that use Kemper's 401(k) turnkey services say that Kemper's technology is one of the company's most attractive features.

Kemper's "exceptional record keeping" was the deal-clincher for Signet, Mr. Guilsher said.

Kemflex, the company's current record-keeping system, calculates actual values and balances on a daily basis for plan participants. That way employees can find out exactly how much they have saved in their 401(k) plan any day.

Kemper has done an "excellent job with Kemflex," Federated's Mr. Johnson said, "but unless you are doing daily valuation, you are not a serious player."

"The key to everyone's 401(k) effort is technology," said Douglas Grip, head of the retirement-services division at Massachusetts Financial Services.

There will be no extra charge for using Kemflex, and the record-keeping system will make the cost of administering retirement plans "significantly less," Mr. Cunningham said.

Cost-Effectiveness Touted

Kemper is pushing its turnkey 401(k) program as a cost-effective way for banks to set up plans for companies with as few as 25 employees. Many banks find it difficult to serve companies with fewer than 100 workers, Mr. Cunningham said.

Kemper has roughly 4,500 plans using the Kemflex system, "so we have tremendous economies of scale," Mr. Cunningham noted.

Small companies are expected to generate much of the growth in the 401(k) business in coming years. Currently, just 9% of companies with fewer than 100 employees offer such plans, according to Access Research, a consulting firm in Windsor, Conn.

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