Although investment in 401(k) and similar retirement plans is booming, banks aren't exactly stampeding into the business.

The reason? Running 401(k) plans is tough - a business where big players have a big advantage, experts say. Furthermore, many banks are believed to be losing money on their services.

Fewer than one-fifth of the banks surveyed by American Brokerage Consultants administer 401 (k) and other defined-contribution plans for their customers. And only 3.8% of the remaining institutions are considering sidering getting into the business.

This might seem surprising, given that defined contribution plans have pushed aside traditional pension plans as employer's preferred retirement perk.

More than $1 trillion was invested in defined contribution plans in 1993, up from $948 billion 1992, according to the Employee Benefit Research Institute, Washington.

The 401(k) plan is by far the most popular of all defined contribution plans, accounting for about half of total plan assets. In 1990, the last year for which the institute has data investment in 401(k) plans alone was $385 billion.

Companies that administer these plans rake in hundreds of millions of dollars in fees from record-keeping and administrative services and by managing the investments.

To be sure, some major banking - like State Street Boston Corp. Northern Trust Corp., Bankers Trust New York Corp., NationsBank Corp., PNC Bank Corp., and Wells Fargo & Co. are big players in this market.

But the banks' biggest competitors are nonbanks like Fidelity Investments, Federated Investors Inc., and SEI Corp.

For most banks, the cost of getting into this highly competitive business is prohibitive.

As a result, the defined-contribution administration business is dominated by a small number of large players that compete on price and on an array of hightech features such as 24-hour voice response services.

"There are fairly significant economies of scale" said Wilson Ellis, a Northern Trust vice president of corporate financial services.

Companies administering plans with fewer than 100,000 participants are unlikely to be profitable, Mr. Ellis added.

Thomas Johnson, a marketing vice president with Federated Investors, said that many banks are administering plans for only 20,000 to 30,000 participants.

"I've told them, |Show me how you can make money. I'd be happy to see it,"' Mr. Johnson said.

Many banks got into the business as an afterthought, experts said. The banks believed the service to be a reasonable adjunct to selling mutual funds. This is because most 401(k) plans offer mutual fund investments to their participants.

But banks face clear challenges in this field. For example, administering defined-contribution plans requires a steep investment in technology - between $500,000 and $1 million, according to Access Research.

That's just to establish record-keeping capabilities - which is not the profitable part of the business. In fact, Access estimates that costs of record-keeping exceed what is billed.

Specifically, Access found that plan sponsors are spending $700 million a year on record-keeping, but the record-keepers' expenses are running at $750 million yearly.

Northern Trust's Mr. Ellis noted that other expenses can also mount up.

For example, plan sponsors are looking for administrators that can provide such things as toll free 800 lines, multi-lingual customer service representatives, and 24-hour voice response systems.

Northern Trust, which administers plans for about 500,000 participants, makes money on the business, Mr. Ellis said. But over the past three years "the general level of revenue per participant has declined somewhat, while the level of service has gotten higher and more costly to provide," Mr. Ellis said.

The plan sponsors themselves show a preference for big players. Increasingly, they prefer to purchase 401(k) administration from a single vendor, rather than purchasing record-keeping separately from investment management, according, to Access.

In 1993, half of all large plans - defined as those with 1,000 or more participants - elected to go with a single vendor, Access found.

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