Tom Hendricks's employer recently adopted a 401(k)-retirement plan for him and his colleagues. Big deal, you say? Well, actually, it is. Mr. Hendricks and the 13 managers who oversee trust-fund operations for a California union have never had access to the hugely popular retirement accounts because of the expense and complexity of running them.

Now, though, cheap and efficient technology is changing those notions. Easy-to-use software and low-cost, back-office support - much of it available online - are opening retirement-savings benefits to an estimated 27 million small-business workers who don't have retirement plans. It's also allowing companies with inflexible and meager plans to upgrade to more appealing, full-blown 401 (k) s by pushing down administrative costs and challenging the idea that small-business owners can't manage the rule-bound accounts. "There's been a whole lot of mumbo jumbo used in this industry to create a Tower of Babel that running a 401(k) is tough," says Jim Gilbert, who has spent 15 years in the industry designing and overseeing retirement plans. Mr. Gilbert, president of 401(K) Pro Inc., Los Angeles, recently introduced a software program called 401(k) Easy - which allows small businesses to manage 401(k) plans as easily as a consumer navigates family finances with programs such as Quicken. "This is not brain surgery," he says.

Mr. Hendricks, who heads up the administrative office for the Southern California International Brotherhood of Electrical Workers-National Electrical Contractors Association trust fund, began looking for a 401(k) for the managers on his staff, who are not covered by the union or electrical employers. (The trust-fund office is the intermediary between workers and employers.) But plans administered by outside suppliers were so expensive - $17,000 in one instance - "that I shut the book immediately," Mr. Hendricks says. Some providers "didn't want to talk to us when they found out how small we were." Instead, he found the answer to the group's retirement needs on the Internet for less than $1,000 - in Mr. Gilbert's program. Now, his office controller, who has no background in back-office plan administration, is running the retirement program for the group, which is one of two test sites for 401(k) Easy.

Big financial-services firms are jumping into the game, too, setting up and administering 401(k) s at prices small businesses can afford. In October, Boston's giant Fidelity Investments introduced "e401k," the industry's first Internet-only 401(k)- plan. Safeco Corp., a big Seattle insurance and mutual fund firm, plans soon to introduce its own Internet option for small-business 401(k) s. Small shops are "the new opportunity" in 401(k) s, according to Steven Sundberg, an assistant vice president at Safeco.

Fidelity's e401k is geared specifically for businesses of between five and 50 workers. It allows employers such as Giage Ltd., a 26-person Cincinnati software firm, to build a retirement plan directly online, and requires that employees access accounts only over the Net. The cost: a $750 set-up fee and yearly charges of $1,750, plus $20 a participant. By comparison, the average 401(k) can cost $5,000 a year or more - a price "that would have been a ‘preventer' for us," says Christopher Baucom, chief financial officer at Giage. Fidelity also handles onerous compliance tests for an added fee. With a smaller, less-flexible 401(k) plan that Reprinted from THE WALL STREET JOURNAL Giage once had, one Internal Revenue Service form took Giage " a whole day to complete and was just a mess" says Mr. Baucom. Fidelity entered the market because internal surveys showed that 401(k) s "haven't been affordable on the very small end," says Peter Smail, president of Fidelity Institutional Retirement Services Co. "That end is grossly underserved." Federal lawmakers tried to promote broader retirement coverage for small-business employees several years ago by creating simplified retirement plans. The legislation reduced or eliminated some of the most onerous rules, but imposed on employers certain contribution mandates.

For example, Collins, Butler & Co., a 24-person accounting firm in Enid, Okla., opted against a simplified Safe Harbor 401(k) because it required the firm to contribute 3% of income to a plan for each employee - a costly proposition. A traditional 401(k) doesn't require that, so long as certain tests are met. Instead, John Garrison, managing shareholder, turned to 401(k) Easy after spending the last three years running the company's plan in-house with a homemade spreadsheet. He expects the new software will cut his 401(k)-administration time to less than an hour a month from about five hours. "A lot of companies are going to look at something like this," Mr. Garrison says, "and see that there's finally a good way to administer a 401(k) plan at a reasonable cost."

The idea of businesses managing their own 401(k) plans in-house, however, doesn't sit well with some financial advisers. "People who have tried [to run their own plans] have botched them up pretty badly," says Richard Kaplan, chief executive officer at Benefit Planning Inc., a Marina Del Rey, Calif., employee-benefits consulting firm that administers 401(k) plans for employers. Indeed, mistakes can prompt IRS "penalties that can be severe," says David Wray, president of the ProfitSharing/401(k) Council of America, a Chicago trade group. An employer mistake, he says, can nullify an entire plan and impose immediate tax burdens on all participants. Of course, complicated rules and high fees aren't the only reasons many small companies have spurned 401(k)s. "They're too constrained financially, or the owner wants a pension for himself, but doesn't want to make matching contributions for employees," says Annika Sunden, associate director for research at the Center for Retirement Research at Boston College.

Attitudes are changing, though. A recent survey by Spectrem Group, a San Francisco financial-services consulting firm, found that 167,000 small businesses, representing roughly 1.6 million workers, expect to add a retirement plan in the next two years. In today's tight labor market, Ms. Sunden says, a growing number of small businesses are deciding that they can't afford not to offer retirement benefits if they want to hang on to hard-to-replace workers.

LOS ANGELES Union Bank of California (UBOC), N.A., and Pension Systems Corporation have jointly developed a web-based 401k plan administration service based upon their existing desktop product. The service allows clients to set up and manage low-cost, option-rich "run-it-yourself" 401k plans from any location connected to the Internet — be it via computer terminal, web-enabled mobile phone or PDA device; access via a toll-free automated voice response system is also available. Like the desktop product, the system is geared particularly toward serving small businesses of one to 100 employees.

"The small business market has been grossly underserved and we are pleased with Union Bank's decision to develop this unique web-based 401k service to deliver full featured, self-service 401k plans to small business and potentially save clients 60% to 80% a year relative to traditional plan administration costs," says Jim Gilbert, President of Pension Systems Corporation

The new online service called 401k Enginuity (www.401kenginuity.com) affords employers plan-specific, convenient access and rapid processing of data and information requests relating to all areas of 401k administration activity, including point-and-click plan compliance testing with results potentially in seconds. Other features include participant account access, investment education materials and enrollment seminars via web casting.

"Our company is a current user of the 401(k) Easy desktop product and have been very pleased with our 'hands-on' experience and are able to process and validate our 401k activity in approximately 15 minutes a month," says Clark E. Cook, Controller for CHSI of Nevada.

As with the desktop product, the online service allows the client to customize the options and services it wants for its plan. Employer matching contributions, participant loans, a broad selection of mutual fund investments from well-known mutual fund companies and other features are available. All the client's customized choices, including investments, are integrated into its online plan administration service.

"Our online service will not only retain the affordability and flexibility of our desktop product but also add the conveniences of online access to plan administration information and provide expanded plan sponsor and participant functionality," stated Donna Ross, senior vice president and manager of UBOC 401k administration in a joint UBOC / Pension Systems Corporation press release.

UBOC intends to launch its online service in 2003.

Based in San Francisco, UnionBanCal Corporation is a bank holding company with assets of $35.8 billion as of March 31, 2001. Its primary subsidiary is Union Bank of California, N.A., the second largest commercial bank in California with 244 banking offices in California, six banking offices in Oregon and Washington and 18 international facilities. UBOC's Institutional Services & Asset Management Division has more than $138 billion in assets under administration servicing the 401k, employee benefit trust, custody, corporate trust and investment management markets. Their website is located at www.uboc.com.

Pension Systems Corporation, Inc. is a Los Angeles-based California corporation and an affiliate of Pension Service Associates (PSA), which has been providing full-service defined contribution retirement plans to small and midsize companies since 1982. Pension Systems Corporation developed 401(k) Easy, a desktop "run-it-yourself" 401k service, from PSA's experience and successes in the small plan marketplace. A retail web-based product called 401(k) Easy Online is now being offered. Licenses for 401k Enginuity, the enterprise Internet-ready plan administration software are now offered to financial institutions, TPAs, HR service providers, and others by Pension Systems Corporation, an affiliated company. Call (800) 660-0050 or e-mail James Gilbert at jgilbert@401k-network.com for more information.

(Summary) Pension Systems Corporation created the patented run-it-yourself 401k Easy, heralded by The Wall Street Journal "...allows small businesses to manage 401k plans as easily as a consumer navigates family finances with programs such as Quicken."