Nov. 5 (Bloomberg) -- It's time for employers to spin off their 401(k) plans.

Employees can benefit from having 401(k)-style plans cleft from their employers because the programs would cease to be a black box of excessive middlemen and management expenses.

As confirmed in three recent rounds of Congressional hearings and several government reports, employers have failed to fully disclose and reduce costs in these retirement plans.

The U.S. Labor Department gave an unintended nudge on Oct. 24 to de-linking when they issued new rules on default investments for 401(k) plans.

Ideally, giving you more control over your 401(k) will also give you the chance to find the best providers of the most diversified funds. Unless your employer absorbs most of the fees -- many don't -- they have no economic incentive to do this now.

Employers contract with middlemen to set up their plans to invest almost $3 trillion for 50 million U.S. workers. Far too many of the additional expenses are passed along and gouge your retirement savings. These total expenses are mostly hidden and not required to be fully disclosed.

It's little wonder that when the AARP, the Washington-based advocacy group, surveyed Americans on how much they were paying in 401(k) fees, 83 percent responded that they didn't know.

New Legislation

Americans are realizing that they can't rely exclusively upon their homes for their retirement kitty. For many, home equity was the only savings they had.

Enter the 401(k). Now plan fees loom large -- like golf- ball-sized hailstones in a thunderstorm. The U.S. Government Accountability Office found that paying an additional 1 percent in 401(k) fees will reduce your retirement fund total by 17 percent after 20 years and 30 percent over 30 years.

``Many participants are not aware that they pay any fees,'' according to an Oct. 30 GAO report, ``and those who are may not know how much they are paying.''

Taking 401(k) plans out of employers' hands would create a competitive national market. Similar to what happened with private Medicare supplement insurance policies, a government- mandated template would drive down costs. Middlemen would get the boot and employees could improve their total returns.

Since the history of 401(k) reform legislation has a troubled past -- most of it has never left Congressional committees intact due to industry lobbying -- you can take up the charge and ask your employer these questions:

Reduced Returns

-- How much are 401(k) account expenses reducing your total return in terms of dollars? Simply stating percentages doesn't clearly show the losses over time.

-- What are middlemen charging you for commissions, administration, Web sites, transfers and other fees? Are there 12(b)1, shelf space, wrap or finder's fees? If so, how much are they reducing your total return?

-- What's the total cost to manage mutual funds within your plan? That would include transaction expenses to trade securities within portfolios, which aren't clearly disclosed in any U.S. mutual fund.

-- Conflicts of interest. If a broker is involved, does he also include funds in the plan managed by his company? If so, they are ``double-dipping,'' deducting one set of fees for commissions and administrative expenses and another for money management. Their greed is costing you dearly.

Dump Laggards

-- How does my fund compare? You should be able to benchmark your 401(k) funds. How much do your plan's total expenses compare with an industry average? How much do returns compare with gauges such as the Standard and Poor's 500 Index? If you have laggards or costly funds, you have the right to request that your employer seek lower-cost, higher-returning funds. After all, it's your money.

-- Every 401(k) plan should offer a standard suite of low- cost index funds that provide complete coverage of international stock, bond, real-estate and commodity markets. The opposite has happened, though, according to a recent study published by the National Bureau of Economic Research.

``The vast majority of the new funds added to 401(k)s are high-cost, actively managed equity funds, as opposed to lower- cost equity-index funds,'' the study said. That means lower returns for you and bigger profits for fund vendors and middlemen.

Dave Loeper, who was incensed that his company's 401(k) vendor was overcharging employees, says new legislation should go one step further and penalize 401(k) vendors if they don't provide full disclosure or if they provide ``materially misleading information.''

Disclosure Needed Now

``The industry has taken a loophole and driven a truck through it,'' says Loeper of disclosure gaps. He is author of ``Stop the 401(k) Ripoff'' and chief executive of Financeware Inc., a financial software company in Richmond, Virginia. ``They are stealing money out of people's retirement funds.''

Now that wealth building has shifted back to financial assets and 401(k)s, it's time you had the freedom to shop for the lowest-cost provider.

What's stopping this transition? For years, American employers were seen as paternalistic. In exchange for decades of your labor, they provided salaries, a pension, health insurance and other perks. Pressured by a global economy, they are offering fewer and fewer benefits.

You might as well have the ability to choose your own plan since you are already charged with picking individual 401(k) funds and allocations. Welcome once again to the ownership society.

-- Editor: Henry (jmg/scc)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

Last Updated: November 5, 2007 00:21 EST