401 OK?

Small businesses lag well behind large companies as retirement plan sponsors, a fact that many entrepreneurs blame on cost. But the rise of tech-driven 401(k) providers now offers entrepreneurs affordable alternatives that can sweeten employee compensation and boost morale.

Timing couldn't be better, as many large corporate providers are abandoning the small-business market because of low margins. The subsequent provider vacuum opens the doors for the new tech-driven provider, which may become the standard method for offering employees a retirement savings plan.

These plan providers reduce the cost of establishing a 401(k) by using the efficiency of the Internet to manage record-keeping and administration. Most also follow a flat-fee pricing schedule that dispenses with the usual broker and transaction fees and asset-based service charges that make traditional plans so expensive for employee and employer alike. The combination can save business owners up to half the cost of a traditional plan, according to Jay Barker, president of 401k Connections, a compensation consulting firm in St Louis.

The catch? Choosing a tech-driven provider means no expensive bells and whistles such as personalized investment advice and customized plan design. And getting the level of participation necessary to make the plan worthwhile requires that employees have a significant comfort level with conducting sensitive financial transactions over the Internet. Companies that can adapt to these limitations gain the advantage of easy access to files kept up-to-date in real time without worrying about maintaining bulky software and complicated databases or data security. "Entrepreneurs don't have to hire a database administrator. They don't have to buy an Oracle or SQL license. All they need is access to the Internet," says Pete Kirtland, president and co-founder of 401k ASP Inc. in Tampa, Florida.

Chad Parks, CEO of Decimal Inc., a tech-driven 401(k) provider in San Francisco, recommends finding a reliable provider that can offer a variety of funds to choose from, employee education that focuses on investment basics, and live phone support as a backup to online service. As Parks describes his company, "While we're Web-based, we're not Web only."