Mutual fund companies have found it difficult to make major inroads in the small business market, but Fidelity Investments is trying to make headway by selling and administering plans directly over the Internet.

Fidelity will begin setting up the plans this summer. While larger plans are sold through Fidelity's account executives, the e401k for small businesses will be sold directly off Fidelity's websites, and

Fidelity is targeting businesses with five to 99 employees, according to Fidelity spokesperson Jamie Haines. That sector includes about two million businesses in the U.S., she said.

"We think it will open up an opportunity for that marketplace. This is the fastest growing segment of the business community," said Haines. The small business community is growing at a rate of six percent annually, she said.

Fidelity already provides 401(k) services to 5,000 small businesses. It is the largest provider of 401(k) plans in the country with over $142 billion in assets under management.

Fidelity's introduction of the online 401(k) plan is part of a broader effort by the company to increase its share of the small business retirement plan market. In late February, it also unveiled a new small business 401(k) product called Premium100, a program of Fidelity Investments Institutional Services which is sold through advisers. The e401k is sold through the Fidelity Institutional Retirement Services Company.

Fidelity wants to offer e401k plans for a start-up fee of less than $2,500, said Haines. She said that on average, start-ups costs of regular plans cost between $2,500 and $6,500.

The e401k plan will be cheaper than larger plans because all plan participant education must be done through the website, and participants will not be allowed to use the phones to check on their accounts, ask questions or make transactions. That will be done through NetBenefits, an online account access program already used by one million Fidelity defined contribution participants.

All administration by plan sponsors will be done over the Web through Fidelity's existing online administration tool called WebStation. But, plan sponsors are allowed direct contact with Fidelity.

The e401k program will also use a new Fidelity tool called PortfolioPlanner, which helps defined contribution participants with asset allocation and saving enough for retirement.

It is logical to target the small business community with a cost-saving Internet product because administrative costs of the plans are one of the major barriers to small companies offering 401(k) plans, said Frank Lallos, a senior analyst with Gomez Advisors, an electronic commerce consultant in Concord, Mass.

"It makes sense for them to be in that marketplace," Lallos said.

Not all businesses will be interested in the e401k, said Haines. Only those companies whose employees have Internet access and are willing to use their computers to manage their 401(k)s would find the program desirable, she said. Those that would be most likely to fit this profile are software, engineering and biotechnology companies, Fidelity said. These are highly competitive fields, and there are many small companies and start-ups nationwide that fit this profile that have fewer than 100 employees.

Sponsors will have 35 Fidelity funds to chose from when they create their company's 401(k) plan. Larger plan sponsors would normally be able to chose from a variety of Fidelity funds plus funds from other fund families.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.