2. Actively monitor performance. Adhere to written guidelines and stay alert, Credico warns. Vendors should not benchmark their own funds, a common trap. Likewise, follow courses of action that guidelines indicate. Astute plan sponsors should notice how benchmarks sometimes shift when investments aren't performing well over an extended period of time, says Credico. "But sometimes, they don't do anything about it."

Investment menus should reflect a full risk/return spectrum. Imbued with a bull-market outlook, 401(k)s offer comparatively few conservative options. Last year, a money fund or a stable-value bond fund supplied the only refuge from a plummeting stock market, says George Naset, retirement-plan services practice leader at 401(k)-plan administrator TRI-AD. "Sponsors discovered that employees who wanted to switch to a more conservative mix didn't like being constrained to a single choice," he says.

3. Disclose fees. This is big. Although plans customarily post fees associated with investment choices, they often don't disclose — or always know about — common revenue-sharing arrangements between plan providers. In these arrangements, investment managers share their revenue with plan administrators and other service providers. The arrangements have spawned litigation against more than a dozen plan sponsors. To date, such charges have not prevailed, but few observers expect the controversy to fade away. "Wall Street firms collect more than $40.5 billion annually in 401(k) fees, yet brokers and human resources often tell workers the fees on their accounts are zero," Teresa Ghilarducci, an economics professor at The New School for Social Research, told a congressional committee late last year.

4. Be wary of company stock. ERISA litigation knows no fury like workers burned by company stock. "If a company plans on investing 401(k)-plan assets in its own stock, it had better be aboveboard with full disclosure," says Maatman. Be scrupulous to a fault. If plaintiffs can connect a falling price to fraud, massive settlements loom. The Big Daddy in this unfortunate category is General Motors. It paid $37.5 million to settle claims that it breached fiduciary duties by not disclosing its true financial condition to employees who invested in GM stock. Also, long before its current problems surfaced, AIG settled a similar case for $24 million, as did Dynegy for $18 million.

5. Talk to employees. Suspending a match program is hard for employees to swallow, but it can be pitched as unavoidable in the current economy. A bigger challenge lies in persuading them to continue saving for retirement. The best inducement, say experts, is an automatic plan — even though it may up the cost of employer matching funds. "Ninety-four percent of the people who are auto-enrolled in a 401(k) plan are still participants one year later," says Cynthia Egan, president of retirement-plan services at T. Rowe Price. Egan says employees who had been automatically enrolled were also less likely than other plan participants to try to make changes in their accounts last September. "In other words, they were less inclined to make investment mistakes."

These days it's much less clear what exactly constitutes a mistake, of course, as short-term considerations threaten to crowd out long-term goals. In the short term, companies may be tempted to put 401(k) considerations on the back burner. But with so much at stake, and so many potential changes in the offing, that would clearly be a mistake.

Lynn Brenner is a freelance writer based in New York City.

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