Retirement plan providers are closely eyeing the new employer-only 401(k) plans as a vehicle that could capture greater rollover assets, open new markets and provide inroads to the high-net-worth crowd.

Under the rules of President Bush's Economic Growth and Tax Relief Reconciliation Act of 2001, consultants, freelance contractors, independent brokers, board members, lawyers and accountants who have no employees other than themselves, can now create their own private 401(k) plans. The legislation provides larger contribution limits and more appealing benefits than what was available under more traditional retirement plans.

To capture the first wave of what some predict may become a flood of assets, both Pioneer Investment Management of Boston and AIM Management of Houston have already introduced their own versions of the new 401(k) plans. Both began offering products January 2.

BISYS, the retirement plan and mutual fund processing and administrative company in Little Falls, N.J., was the first company to receive approval from the Internal Revenue Service last fall for its prototype individual 401(k) plan. BISYS has also built a record keeping and administrative system to accommodate the new plans.

BISYS is currently talking with as many as 50 financial institutions, including mutual funds, about providing services for these micro plans. "We see it as a huge opportunity for so many small businesses that don't have retirement plans," said Chris Guarino, president of BISYS' Retirement Services Group. "Now it's so much more advantageous for sole proprietors to stash away money for retirement."

Another factor that makes the individual plans appealing to providers is the low administration costs needed to run the plans.

The new plans could be a viable retirement option for an estimated 20 million small business owners, the majority of whom don't currently have any retirement plan, say industry executives.

It can also be an avenue for tapping into the audience of wealthy individuals, many of whom are independent business owners. "With an estimated six million people with over $1 million incomes, I cannot think of a better way into the high-net-worth market," said Troy Shaver, vice chairman of GoldK, the online retirement services provider. Like Bisys, GoldK has been fielding calls from interested plan providers, he said.

When Pioneer first made quiet mention of its UNI-K Plan late last year, brokers began calling, said Jodie Hale, a retirement plan marketing executive with Pioneer. Brokers are enthusiastic about the opportunity to offer successful small business owners a retirement plan with higher contribution limits. "It's a hook that's appealing to brokers and business owners. I've never seen a product embraced so rapidly by the broker-dealer community," she said. "This has opened the door to a lot of corner offices whose occupants hadn't wanted to talk to us before."

Pioneer, which claims in print advertisements that it offers the first plan of its kind, is offering the Pioneer UNI-K plan. Pioneer has no plan initiation charge, charges an annual $100 administration fee, and handles the plan administration internally. Pioneer charges a $100 fee for each plan loan.

AIM, which has dubbed its plan the AIM Solo-401(k), charges an initial $150 plan set-up fee and an annual administration fee of $150. Administration for AIM's mini-401(k) plan handled by The Benefit National Companies of Aurora, Co., which administers other employer-sponsored plans for AIM. Loans from the plan carry a $75 charge.

Little Plans with Big Benefits

Annual contribution limits to single participant 401(k)s can be as high as $40,000 per year for both incorporated and unincorporated businesses, with an extra $1,000 catch-up contribution allowed for participants over age 50.

The plans also offer more flexibility because they don't lock business owners into making a contribution each and every year. Moreover, like traditional 401(k) plans, the mini-401(k) plans allow business owners to take out loans and assets from other tax-qualified retirement plans can be rolled over into them Additionally, plan assets are 100% vested from the plans' initiation.

Tapping the Rollover Goldmine

While tapping a whole new audience of sole proprietors is very appealing to Pioneer, it's the other assets that may be far out of sight that has Pioneer executives anticipating the product's success. Pioneer hopes it has found a side entrance into the burgeoning rollover market.

According to Hale, SEP-IRAs hold a collective $70 billion in assets which can now easily be rolled over into a UNI-K plan. "The rollover is what we are banking on," Hale said. But even the regular annual contribution to the UNI-K plan would be larger than the usual initial investment to a non-retirement mutual fund account, she said.

Like Pioneer, AIM is also hoping to win the assets of both small business owners who do not currently have a retirement plan and those who already maintain a SEP or other plan but want a more flexible option with greater benefits.

"We know there's a market out there, but the question is how big?" said Patrick White, VP, of AIM's retirement and education products division. White said that he expects to open between 1,000 and 3,000 new Solo 401(k) plans this year; which would make it approximately the size of AIM's education IRA market. Currently, AIM is focused on educating the brokers it sells through about the plan, White said.

Pioneer and AIM appear to be the only fund groups currently offering the sole proprietor 401(k) plan. Others are taking a wait-and-see approach.

A spokesman for INVESCO's retirement plan unit in Atlanta said that "INVESCO is not currently looking at that market." INVESCO is a subsidiary of AMVESCAP of London.

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