SunTrust Banks Inc.'s launch in April of a retirement plan platform for small employers seems like a no-brainer. According to ING Direct, just 20 percent of U.S. businesses with fewer than 25 employees have retirement plans, and the rest of the market is not much further ahead. What's more, SunTrust's own survey indicates small businesses overwhelmingly want to offer 401(k)s and similar plans to their employees.
"We were encouraged by the fact that 85 percent of them said — even during this period of turmoil — that having a retirement plan is really important," said Brenda Seliga, head of employee benefit solutions at SunTrust. Yet if SunTrust's small-plan retirement business succeeds, it will be a noteworthy achievement. Most banks have taken a pass on the business, and many of those that have tested it have floundered. The problem, they've found, is that sales to small employers generate little profit. "The economics of the market make it a difficult one to service," says Rick Meigs, president of 401khelpcenter.com LLC.