BOSTON - When Pensions and Investments magazine recently listed the top 401(k) plan managers in the country, Fidelity Services and Bankers Trust of New York placed a predictable first and second.

The surprise was the third-place "show" horse - State Street Bank and Trust - with $29.4 billion in defined-contribution plan assets at the end of 1994.

State Street jumped from 15th place on the list in 1993, leapfrogging in 1994 ahead of such defined-contribution behemoths as Vanguard and Wells Fargo & Co.

While improved reporting procedures by State Street accounted for much of the jump, it's clear that the bank's ambitions in the 401(k) area have never been stronger. It hasn't hurt matters that earlier this year, Nicholas Lopardo, the hard-driving chairman of State Street Global Advisors, the bank's investment management arm, was given responsibility for State Street's 401(k) push.

In the last year alone, the bank signed up two corporate giants - Lockheed Martin Corp. and Baxter International Inc. - picking up more than $1.5 billion in assets and 76,000 plan participants.

Moreover, consultants and State Street executives will tell you that this bank won't lose its footing among the top ranks of 401(k) service providers anytime soon.

In an industry in which the largest players are gaining assets at the expense of the smaller ones, State Street - benefiting from the scale of its record-keeping capabilities and institutional investment management expertise - may not even have to worry about Fidelity.

There will be plenty of business for both firms.

"It's critical in this business to be top tier," says James S. Phalen, a senior vice president with State Street in charge of retirement investment services.

Indeed, the bank has the infrastructure to sign up the largest plan sponsors in the country. A typical State Street account ranges from 10,000 to 15,000 employee participants.

State Street has managed to sign up the likes of Pepsico and its 150,000 employees, as well as such slightly smaller plans as Allied-Signal, United Parcel Service, and Amoco.

In the first six months of this year, defined-contribution pensions under State Street's control jumped 34%, to $39.5 billion. And Mr. Phalen expects the unit's asset base to grow 20% a year over the next five years or so.

State Street's formula for success couldn't be more different than that of crosstown rival Fidelity. While Fidelity's push into the retirement market has benefited from the widespread consumer recognition of its mutual fund family, you won't find 401(k) plan participants clamoring for State Street's investment offerings.

Indeed, the Seven Seas family of funds - State Street's proprietary fund family and a principal investment option for its 401(k) plans for under 2,000 employees - is a relatively new collection of institutional portfolios with no consumer awareness.

The key investment offering to such big-plan sponsors as Pepisco and Allied-Signal is a variety of no-name portfolios co-mingled with customized investment portfolios.

So how has State Street managed to get plan sponsors clamoring for its investment offerings when employees have never heard of them?

"We say that our funds are a new extension of a very long, well- established investment strategy used by one of the largest managers of pension assets in the world," says Theodore A. Miller, a principal with State Street Global Advisors.

"Our investment strategy is risk-controlled diversification," adds Mr. Miller, who is responsible for marketing State Street's 401(k) services to plans of 200 to 3,000 employees. "We are not swinging for the fences."

This pitch to the conservative leanings of plan sponsors plays well.

Besides, State Street offers a variety of funds managed by outside fund families like American Funds, Franklin Resources, and Scudder, Stevens & Clark.

But time-honored pension investment advice is just part of the story behind the bank's asset-gathering success.

State Street is known first and foremost as a custody bank, a business driven on the strength of processing vast amounts of information. And the bank has brought this strength to bear in the 401(k) administration area.

Ron Bush, vice president of Access Research, a Windsor, Conn., pension consulting firm, says "401(k) is a transaction-processing business, and State Street is known as a transaction-processing bank."

An employee whose 401(k) account is with State Street can get daily price quotes from a automated voice-response service that operates 24 hours a day. If the employee wants to borrow money against the assets in his or her account, State Street's system allows for quick loan approval and a check in the mail within five days.

"Other companies haven't made this kind of investment and they are falling by the wayside," said Philip J. Lussier, a State Street senior vice president in charge of marketing the bank's 401(k) services to large companies.

NationsBank, for example, has exited the 401(k) business in the past year.

State Street's presence in the industry is expected to continue to grow as more defined-contribution assets become concentrated among the top-tier firms.

Today, the top 15 firms control only about 40% of the defined- contribution pension market, according to Access Research. In five years, they're expected to control about 80% to 85% of the market.

While State Street has focused its business on picking up large Fortune 100 corporate accounts, the bank recognizes that this market is tapped out. "It's become a zero-sum game in the large-plan area," says Mr. Phalen. "To win business, it will have to come from somewhere else."

That's why State Street is homing in on smaller businesses, many of which are high-tech firms that came into existence in the last few years and are choosing a 401(k) plan for the first time.

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