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Subject:  Limited Fund Choice in 401K--Au Contraire Date:  7/25/2005  8:54 AM
Author:  tjscott0 Number:  248161 of 876031

A few short years, the main criticism of 401(k) plans was that the "plan managers" (banks like Wells Fargo or fund companies like Fidelity, Vanguard and T. Rowe Price) offered very limited menus, usually a dozen or less, and only their own proprietary funds.

You knew there were better funds out there in the vast universe of mutual funds, but the attitude of the plan manager and the "plan sponsor" (your company) could be wrapped up as: "take it or leave it." Your company gave its plan manager a monopoly that wasn't the best deal for employees.

Back then, a few plan managers did offer employees access to their "fund supermarket," a network of funds from other fund families who pay to get in the network list. You'd get some more funds, but you either paid an extra fee or there was some sort of quiet "rebate" from the selected fund companies paid to your plan manager.

Some plans also offered employees "self-directed brokerage accounts" as an add-on option. You got unlimited access to all markets, but you paid an annual fee.

A few years ago, I learned about a hush-hush "Trojan Horse" option from the 401(k) experts at Schwab. Turns out there was a way to sneak several Schwab or Vanguard or T. Rowe Price funds into a plan managed by Fidelity, for example. And you didn't have to pay extra.

And it's so easy! A simple technology called "Open-Architecture" was available all along that gives any employee in any 401(k) plan in any American company a way to consolidate all their accounts in one location and also access to all financial markets and every other fund company. But most companies didn't know about it.

So why the secrecy? Because by keeping the hush-hush Open-Architecture option a secret, a plan manager could maintain its monopolistic hold over a company's 401(k) plan and its employees. In fact, several sources tell me the competition to get lucrative 401(k) plan-management contracts is so intense that not only do very few American workers know about the Open-Architecture option, most corporate executives who pick and hire a plan manager also are the dark.

So here's my suggestion: If all this is new to you, and you'd like more choices in your 401(k) plan, walk into your boss's office tomorrow and suggest the company get out of the dark ages of technology. Open-Architecture's been around for a while. It's about time fund companies stop hiding it from investors.
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