To keep discriminating corporate clients happy, banks will need to broaden their retirement-plan businesses to include additional benefits, experts say.

Indeed, State Street Boston Corp. announced Dec. 6 that it will form a joint venture with Watson Wyatt Worldwide, a leading provider of employee benefit services.

The new company will enable State Street - already a major provider of pension and 401(k) investment offerings to U.S. companies - to serve also as an administrator of medical, dental, and other employee benefits.

Benefits companies like Watson Wyatt "come to the table not only with their clients, but with systems, legal expertise, and experienced service personnel - and that adds value," said Kenneth R. Hoffman, president of the Optima Group, Fairfield, Conn.

"We'll be seeing a lot more of these ventures in the future, " he asserted.

Driving banks in that direction is intense competition in the retirement-plan industry that has forced down the fees banks receive from administering corporate retirement plans, Mr. Hoffman said.

Adding benefit services offerings can open another stream of fee revenue for a bank.

Corporate down-sizing is also a factor in the expansion, some observers say. As companies cut costs, some are looking at pruning the amount of benefits administered internally by corporate human-resource departments.

Robert Wuelfing, president of Access Research, Windsor, Conn., said many banks simply do not have the infrastructure to bridge their retirement-plan services to such other areas as administering health and dental insurance coverage, or providing actuarial services.

"Without a joint-venture, most banks are not in a position to serve the total benefits market," Mr. Wuelfing said. "It can take at least an initial $15 million to $20 million investment to do it on your own."

James S. Phalen, managing director of retirement investment services for State Street Bank and Trust Co., said the his bank was not willing to absorb the cost of expanding internally. Instead, he said, the joint venture with Watson Wyatt will cost the bank $50 million over the next three years.

"Clearly it would have cost substantially more to do it on our own," he said, "but more importantly it would have taken us a much longer period of time to come to market."

Northern Trust Corp. has been quietly expanding its total benefits outsourcing business since its April 1994 acquisition of Hazelhurst Corp., a retirement-benefits provider.

Constance Magnuson, senior vice president and director of retirement services for Northern Trust, said the banking company now provides total benefits services for five corporations, including Quaker Oats Co. and Arvin Industries.

"From our vantage point, we had worked in joint ventures before, but we felt we needed the full capability in our control," Ms. Magnuson said.

"We will see a handful of key banks looking to expand their capabilities," she added, "but the challenge will be finding a capable, credible player to hook up with - it's a finite market."

Indeed, only a handful of companies now offers total benefits outsourcing, including consulting firms such as Towers Perrin, Hewitt Associates, and such upstarts as Fidelity Investments and Cigna Corp.

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