What's Wrong With Your 401(k) -- and How to Fix It

In theory, investing your own retirement money through a 401(k) sounds sensible. But in practice, the system works about as well as the airline industry.

Many people in this country are saddled with complicated options, high fees and mountains of inaccurate, indecipherable information.

But you probably don't have a choice. All you can do is learn to work with what you've got. Here are some common problems investors face in their 401(k) plans, along with some quick solutions.

A Short List of Lousy Funds

The average 401(k) plan has about a dozen investment options in it. But that number means nothing if most of your choices are just plain awful.

A 401(k) is a great place for a fund company to unload those portfolios that no one with an actual choice would ever buy. You know the type: Lofty expenses, shaky inexperienced managers and weak, if not awful, returns.

If you screen for index funds on Morningstar's Web site, you'll get a surprisingly long list that includes some shockingly expensive funds. Who is buying these things? Investors in 401(k) plans who have nowhere else to go.

Five Funds: Small-Cap Value Offerings That Earn Your Money These funds, some well-known, some undiscovered gems, do a fine job unearthing winning picks.

In one friend's 401(k), I spotted the (PSPIX Quote)UBS S&P 500 Index fund, which costs 0.6% every year. That's over three times more expensive than the (VFINX Quote)Vanguard 500 fund.

In the real world, you'd run in the other direction. But in the land of company-sponsored retirement plans, you're trapped.

Solution: Even if the index fund in your 401(k) plan looks pricey, it's still a decent alternative to expensive actively managed funds. The average stock picker cannot consistently beat a broad stock market index like the S&P 500. And you can easily track the performance of the S&P index in the paper every day.

Thank God for small favors.