After a wait of nearly two years,
Firsco, the retirement services unit of
Fidelity Investments, has unwrapped its
e401k. The 401(k) giant is actively courting startup plans with roughly 20 to 80 participants with a new Internet-only 401(k) bundled package. Small employers need only go to
www.fidelitye401k.com to sign up for their
e401k.
The Fidelity
e401k has been anticipated since the MFWire's sister pub, the 401kWire.com first broke news of the development of the product in January of 1998 and Fidelity itself announced the product last March. Indeed,
Guy L. Patton, executive vice president at Firsco, reports that roughly 300 companies inquired about using the plan after the March announcement.
Twenty-four small businesses are currently in the process of undergoing installment of the system, according to Patton.
"This 401(k) product is designed to have a lower cost structure.
This should make it affordable for small businesses, and it allows them to have a benefit that will attract and retain quality employees," Patton, executive vice president at Firsco, told the 401kWire.com, during a demonstration of the service late last week.
"This product is especially useful for new small tech companies that want to offer employees all the benefits they can. And since they are already Web-savvy, it is not a great leap for them to sign up for our service," Patton added.
The
e401k service is designed so that sponsors can go online and sign up for services immediately. No broker/dealers, consultants, or other similar advisors are involved in the search. The Boston Behemoth will be targeting plan sponsors directly through its marketing. Fidelity plans to launch a direct mail campaign as well as banner ads on sites frequently visited by plan sponsors.
"We also have a large retail base from our other product lines. That is another potential audience right there," Patton elaborated.
Fidelity is aggressively courting small plans with a module that allows sponsors to compare plan costs. The sponsor can input the various costs of other plans into a calculator that will compare other vendors' pricing with Fidelity's. The fund giant appears confident that it will do well in such comparisons, especially when sponsors consider wrap and annuity charges often charged in the micro plan market.
For the small business 401(k) plan, there is a set-up cost of $750, an annual recordkeeping and trustee fee of $1,750, and an annual per participant fee of $20.
Participants pay the asset-based charges. The average investment management fee, according to the firm, for the 25 mutual funds is 79 basis points.
Sponsors who choose
e401k can send an electronic file to Fidelity with the necessary information about employees. Fidelity will then send enrollment forms to those employees. Sponsors can use the same method to send contribution data to Fidelity or enter the data through the Web. To date, none of the major payroll vendors have allowed Fidelity to create a direct link with their systems.
Patton explained that the product was designed to be a "box with flexible edges" in order to keep costs under control while also offering a state-of-the-art bundled package. The restrictions on plan design include a limited number of matching formulas (although all of the most common designs are included), a fixed number of investment options and no toll-free number for participants.
Sponsors will have 25 Fidelity-managed mutual funds -- no more, no less -- for their plans' investment options. All of the 25 are no-load funds, including options from the company's
Freedom series of date-targeted asset allocation funds. The funds cover the spectrum of investment objectives. Patton added that over time the vendor would be adding non-Fidelity and regular no-load funds.
The reason for fixing the fund lineup at 25 was to enable Fidelity's
PortfolioPlanner to be included as a standard feature in the service, according to Patton. This means that all clients of
e401k will be able to take advantage of the firm's asset allocation tools and online education. Even mutual fund prospectuses will be available online.
Fidelity has provided a FAQ (frequently ask questions) to answer common queries from either the sponsor or plan participants. It also has an "e relationship manager" to collect questions to be submitted via e-mail to a customer service representative. For more complex issues, the administrator can place a call to the firm.
One big challenge for small plans is non-discrimination testing. For this service Patton explained that Fidelity allows the client to choose one of three options:
- Fidelity will provide the materials through its Plan Sponsor WebStation. The small business owner can then fill out the necessary forms.
- Fidelity will conduct some of the tests.
- Fidelity will conduct most of the testing and provide
a signature-ready 5500 form.
If the client opts for the vendor's discrimination testing services, it could cost that client up to $1,000.
Fidelity's product, which is tied into the same Firsco recordkeeping system used throughout its product lineup, is a most interesting first step. Yet some sponsors may still find it too costly and others may miss the comfort of human contact. Still it will find a niche, and one that just might be larger than many expect.
For a long time, the micro plan market of companies with fewer than 100 employees has proved too costly for 401(k) vendors to make an impact. Now, with developments in e-commerce, it seems as if the last frontier of the 401(k) arena is about to be conquered. Vendors are advised that if they have any desire of entering this marketplace, then they should do so soon. Or else firms that have established footholds early will make it extremely difficult for late-comers.
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