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Towergroup Research Says "E-401(K)" Will Be A Boon To The Under-Served Small Business Market
Web-Based 401(k) Initiatives Will Drive Rapid Growth of Investment Vehicle Within Small and "Micro"-Company Sectors
Needham, Ma, December 12, 2000 — New TowerGroup research on the fast-growing electronic or "e-401(k)" segment shows major change on the way for the current defined benefit industry–change that will translate into new levels of access for small businesses previously priced out of 401(k) participation. Highlights of the research include the following:
- Since its origins more than 20 years ago, the U.S. 401(k) market has grown to include over 41 million workers with more than US$2.5 trillion dollars in assets under management. For most American workers, their defined contribution retirement "nest egg" is their largest liquid financial asset, second only to the untapped equity in their own homes.
- The growth rate for this investment vehicle shows no signs of slowing. By 2005, TowerGroup expects total 401(k) assets under management will approach US$5 trillion.
- "e-401(k)" is now emerging as a significant disrupter to the current defined contribution industry. Just as online brokers forced a sea-change across the universe of full-service brokerages, e-401(k) is poised to significantly reduce the expense of sponsoring a 401(k) plan, making the vehicle more accessible to all employers regardless of company size.
- TowerGroup believes that by 2005, 65% of U.S. companies with less than 500 employees will sponsor 401(k) plans–up from just 35% in 2000. This growth will be largely driven by new e-401(k) initiatives.
"Established players in this space need to take heed–the advent of electronic 401(k) is rapidly changing the competitive landscape in the defined benefit industry," said Dennis Ceru, director of TowerGroup’s Online Brokerage practice and author of the research. "There is a significant push now underway to define new products for customers at the smaller end of the market. Once overlooked as too costly to service, even the micro-company segment (under 50 employees) can now be reached with e-401(k). Electronic 401(k) plans initiated, delivered and managed via the Internet are not only cost-efficient but highly scalable."
Mr. Ceru’s research report titled "e-401(k): Upsetting the Status Quo By Using the Internet to Provide Defined Contribution Plans to Small Business," is available to qualified members of the press for review.
About TowerGroup: TowerGroup is the leading provider of information technology research, advisory and consulting services specializing in topics critical to the global financial services industry. TowerGroup conducts research addressing banking, securities, investments, and insurance information technology, products, vendors, markets, investment trends and issues. Headquartered near Boston, Massachusetts, and with offices serving Europe and Latin America, TowerGroup serves a global client base, which includes some of the world’s largest financial services, technology and consulting firms. For additional information, visit TowerGroup online at www.towergroup.com.
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