Financial regulation generally works on a sliding-scale principle: The less sophisticated the investor, the more protection the law provides. In the world of 401(k) plans, however, the less sophisticated the investor, the

less

protection the law provides.

Over objections that workers may not have the financial savvy to manage their own retirement accounts, states are stampeding to switch workers' state-guaranteed pensions to 401(k)-style plans, known as defined contribution plans, in which a worker's retirement security depends on his or her own financial acumen.

You would think that providing fund-disclosure documents to plan participants would be especially important in this context. Yet, federal law relieves mutual funds of any obligation to provide participants in 401(k) and defined contribution plans the information they would receive if they invested in the funds directly, outside of the plans.

For years, the

Securities and Exchange Commission

has been politely pointing this out to

Congress

, but to no avail. In a 1992 report, the SEC staff noted that "when the investment risk falls on the employee, plan participants need the same information as any other" investor in a mutual fund.

Funds are required to provide shareholders with prospectuses and annual reports that provide essential information about expenses, investment objectives, risks and operations.

Under the securities laws, however, the plan itself is considered the shareholder. Thus, funds are required to provide only the plan's representatives -- not plan participants -- with disclosure documents. "Retirement planning should not be a guessing game," responds Richard L. Trumka, secretary-treasurer of the

AFL-CIO

, to this disparate treatment of employee investors. "Workers need to be fully informed as to how their savings are being invested."

To remedy this problem, the SEC for years has recommended that Congress amend securities laws to extend these protections to people who invest in mutual funds through pension plans. These recommendations have fallen on deaf ears.

Over the last few years, the

Department of Labor

(yes, the Department of Labor administers many of the laws governing pension investments) has half-heartedly adopted rules that encourage employers to provide plan participants with some of the information found in fund-disclosure documents.

But these rules fall far short of providing plan participants with information other mutual-fund shareholders receive. As noted recently by Paul Roye, director of the SEC's investment-management division, the Labor Department's rules are voluntary and leave it to plan participants to request fund documents on their own.

That's not all. Unlike other fund shareholders, plan participants do not have the right to vote their shares. Many have no assurance their requests to buy and sell shares will be processed that day -- or even that week. All of this is on top of the fact that they don't get to choose the plan's investment options in the first place.

None of this has deterred states from embracing 401(k)-style plans for their employees. Earlier this month, Florida's state

Senate

approved a plan that would allow 650,000 public employees to opt out of their state-guaranteed pension plans and into a defined contribution plan.

Fund companies that have lobbied Florida legislators to shift to a 401(k)-style plan may come to regret not also lobbying to change disclosure rules. Inadequate disclosure may lead to poorer investment decisions, which often lead to lawsuits. This isn't a problem in an overheated market, but when investment returns turn south, these shareholders will come looking for compensation. But with $100 billion in the Florida pension system up for grabs, who has time to worry about the future?

As currently drafted, however, the Florida proposal could leave taxpayers footing the bill for bad investment decisions. Workers would have a one-time opportunity to switch back to the old-style pension plan in case their investments flop.

Since 1999, seven other states have adopted similar plans to offer 401(k)-style pension plans. Thus far, Florida's proposal is the most comprehensive. Ten more states, including California and New York, are currently considering their own defined contribution programs.

As stated by the SEC staff, "for many pension-plan participants, choosing where to invest their retirement-plan assets will be the most important investment decision they will ever make." This would seem to argue for more disclosure for these investors than is normally required. In this case, Congress appears to believe that less is more.

Mercer Bullard, a former assistant chief counsel at the Securities and Exchange Commission, is president of Fund Democracy LLC, a mutual fund shareholder advocacy group in Chevy Chase, Md.