The objectives of using a 401(k) plan in business development are client acquisition for growth, and client retention for stability. When used properly, your PEO 401(k) plan can be a golden arrow to hit your marketing target thereby capturing new clients. It is also the mortar in the fortress of service that you build around your clients to retain them for the long term.

The traditional client development "pyramid" presented in this article offers a graphic illustration of the 401(k)'s usefulness in acquiring new clients. The base of the pyramid is data. How well we transport data to the second level, where it becomes marketing information, is determined by our interpersonal communications skills. Specifically, transforming data into information reflects our ability to gather client data through our listening skills and to learn about a potential client's needs and desires. In the operational environment, it is the automated electronic data links inherent in the delivery of a 401(k) plan to a client that provide the communications resource that raise raw data to the level of marketing information.

Once this is achieved, it is the processing and application of this information that will elevate it to the level of knowledge. Superior knowledge of your client's objectives will provide you with a marketing advantage that can result in the acquisition of new clients. This client development pyramid helps provide PEO's with a structured approach to understanding important marketing concepts.

The next step in successful client acquisition is the introduction of a strategic approach to sales. Some of the specific recommendations made in this article may not "fit" the format you have chosen for your 401(k) plan. This client acquisition system is not based on the PEO paying matching funds to encourage client development.

David W. Core

Although this may be a viable choice in acquiring clients, it may also create an open-ended liability for the PEO.

Basic Client Targets There are two basic target groups in client acquisition: clients who are unfamiliar with the PEO relationship and its resulting benefits; and clients who have an existing PEO relationship.

Let's start with a client who is unfamiliar with the PEO relationship. In some cases, it may be difficult to communicate the benefits of a PEO relationship to this kind of client.

Your sales staff may need a key that helps them open the door for such a prospective client to consider your PEO. Your 401(k) plan may be the thing that provides you with this key.

Although many clients today may not understand the PEO relationship immediately, they may well understand a 401(k) plan. In fact, they may have an existing 401(k) on which they're spending a good deal more money than they would on the plan as offered through your PEO.

Let's take a common example. A 20-employee company would spend approximately $1,500 to $2,000 in administration expense to maintain a 401(k) plan. Under a multiple-employer plan, your PEO could offer a per-participant fee of $25. This would result in a significantly reduced total fee of $500 to this prospective client.

The use of this "bottom line" technique can be very effective in opening a dialog to discuss the benefits of associating with your PEO. Even if the prospective client offers initial resistance to meeting with your sales representative, an appointment may become acceptable if your sales person suggests that the client's retirement plan can be administered at a reduced cost.

If the client was paying $2,000 in fees and now pays only $500, this suggestion adds $1,500 to the client's bottom fine. Your sales representative can further demonstrate that, if this money was invested by the client in the 401(k) plan at a 10 percent return, it would be worth $108,848 in additional retirement dollars in 25 years. Furthermore, these clients may not be able to receive the same high levels of service and reduced cost from the investment company administering their current plan as they can receive under the same plan that you provide to them.

Another factor of importance to the prospective client is the level of responsibility associated with the plan. A PEO can provide specific information as to how the client can reduce the operational responsibilities to a retirement plan. Some of these are quite evident, such as through the processing of the salary deferrals, but I many other record-keeping and operational procedures are required of the potential client if it wishes to maintain its own plan.

An interesting case in point is a firm that had a difficult time with record-keeping. A good record-keeping system should be able to monitor compliance issues on an ongoing basis. This can be a major benefit to the client's operations person or department responsible for many of the record keeping duties for the plan. A reduction in the fact-gathering and workload- processing required of the potential client's staff makes its job so much easier.

With a potential client, who is unfamiliar with the advantages of a PEO relationship, this reduction in the record keeping workload, all by itself, can give a marketing advantage to the PEO that can result in new business.

Another marketing opportunity can be found in the design of your 401(k) plan. You may discover that many prospective clients choose a plan design that may be less efficient than the plan design you can provide. A good example of this is a client with a profit sharing plan who found that, through a PEO relationship, administration fees could be reduced 401(k) salary deferrals could also be included with no additional cost. The client compared this to adding 401(k) salary deferrals to the existing plan, and found that there would be additional costs on top of the higher costs already incurred on the profit sharing plan. This situation was instrumental in that client choosing to become a client of a PEO.

The Value of Multiple-Employer Plans
The second target client group includes those companies Also have an existing PEO relationship. You may be familiar with various issues associated with multiple and single employer plans. In discussing the strategic sales approach, the multiple-employer worksite-testing environment can provide a higher level of flexibility for every client that you may acquire. A multiple-employer plan may provide a competitive advantage over a standard single- employer plan, because the provisions of the multiple-employer plan would allow you to include highly compensated employees and owners in the plan. The principle of worksite testing allows compliance testing to be calculated on a client-by- client basis.

In addition, a multiple-employer plan may provide a greater level of flexibility associated with the contribution formulas than would be the case with hybrid or standard single-employer plans. The multiple-employer plan may provide contribution formulas on a client-by-client basis for 401(k) contributions, matching contributions, discretionary matched contributions, and discretionary profit sharing contributions on a "comp-to-comp" basis, or integrated with social security This flexibility in contribution formulas may provide an instant marketing advantage over a competitor's plan that doesn't provide this level of flexibility.

Another feature that is very important in your marketing and sales strategy is to include indemnification-of-surrender penalties. One of the difficulties associated with client acquisition is the possibility that they will experience a surrender penalty in transferring their assets into your plan. The ability to reimburse some or all of these penalties has facilitated the acquisition of prospective clients because it reduces or eliminates the cost associated with such a transfer.

This process was responsible for bringing a very large company to a PEO because it was dissatisfied with its current investment firm's inability to release it from contract without paying a penalty,.

Within the realm of client retention, there are also basic applications of principles to achieve marketing success. One method is to interest all of your clients in joining the 401(k). A successful 401 (k) plan helps the PEO acquire a greater level of client retention than when the client does not participate in the 401(k).

The level of contribution that can be made by the highly compensated is a function of the participation of the non-highly compensated. With proper communication of the plan's benefits, a high percentage of enrollment of the non-highly compensated employees can be achieved. This provides the client's highly compensated people the opportunity to save at the levels they desire.

These strategic marketing techniques are offered in the hope that some of them may help you when applied to your plan for growing your company. Maintaining a 401(k) plan that provides a benefit to your clients is certainly a good idea. Maintaining a 401(k) plan that benefits your clients and creates a client-acquisition system is even better.

The development of a 401(k) plan isn't merely an investment company decision. Issues of plan design, communications, and effective administration can provide techniques for acquiring clients that are as important as the investment options that are carried under the plan. In the total 401(k) plan approach to client acquisition, all aspects of the plan lead to winning new business for the PEO.

David WD. Core is a Certified Financial Planner, a Chartered Financial Consultant, and a Certified Life Underwriter. For more information, he may be reached at (800) 375-PLAN (7526).

David W.D. Core is a registered representative of, and securities offered through, Lincoln Financial Advisors Corp.