Are co-workers nibbling at your 401(k)?

It's certainly not too soon, though, to question your benefits office about your retirement-savings plan. Start by asking if any of your money is in a fund named in recent investigations. If it's an international fund, for instance, find out if you have other options for international diversification. If not, you can urge your company to consider adding an alternative. "In the current environment, there's a much greater opportunity for employees to be heard," Mr. Cassidy says. "Before, there may have been one or two lone voices ... but now everyone knows there's a problem."

The other basic step that too few Americans take, experts say, is reading the prospectuses of funds. You may already have a choice of funds in your current 401(k) that carry redemption fees and rules geared toward long-term investments rather than short-term trading.

But reading up on a fund isn't necessarily enough. Sometimes plan administrators negotiate deals to allow employees more trading than the fund normally would permit.

"There's been a long-term trend to allowing frequent trading in 401(k) plans, and it has never been in the best interest of the plan members," says Mercer Bullard, founder of Fund Democracy, a watchdog group in Oxford, Miss. "What plans should do is simply prohibit frequent trading, because that's the only position that's truly consistent with a 401(k) being a long-term investment vehicle."

Mandating redemption fees would be a useful reform, Mr. Bullard says, and that's a step under consideration by the Securities and Exchange Commission (SEC). "That would greatly reduce the costs in some of these plans," Bullard says. If that rule is in place and prices are updated instead of stale, it removes the profit motive for market timing, he says.

In a public meeting Wednesday, the SEC proposed a different reform - a hard cutoff at 4 p.m. for mutual-fund trade orders. Its intent would be to prevent the kind of hidden late-trading that has come to light in the past few months. It would also mean intermediaries, including those who bundle orders from 401(k) participants, would have to cut off trades earlier in the day to have time to process them. Some see the proposal as an overreaction that would put small investors at a disadvantage. "Fundamentally we don't need a gross overhaul," Ciccotello says. "We need the market to react ... and that's happening. Let's not legislate the open-end fund product to death."

The good news is that people who lost money because of fund schemes or flaws in the system should eventually be reimbursed. And because there are trustees charged with monitoring 401(k) plans, participants "have a level of protection and oversight on their behalf that the individual investor doesn't," says Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.

Page: 1 | 2