CBS.MarketWatch.com

SAN FRANCISCO (401Kafe) — So your retirement money has been stuck in the few stodgy mutual funds offered by your 401(k) plan. Take heart! Freedom is coming in the form of self-directed investment options.

If you’re the type of 401(k) participant who can’t decide how to invest among five funds, this probably isn’t the appropriate investment choice for you. Ted Benna, creator of the 401(k)

Retirement plan participants with an itch to run the show may soon get the control they want with something called a brokerage window, or self-directed 401(k). The option lets the participant invest in almost any mutual fund, stock or bond. About 10 percent of employers offered brokerage windows in 1998, up from none five years earlier, says the Profit Sharing/401(k) Council of America.

Still, one watchdog group raises big concerns about self-directed 401(k)s. When the market levels out or spirals downward, will self-directed 401(k) investors have diversified their retirement portfolio enough to protect their retirement money? And who’s liable for the losses?

And brokerage windows carry additional costs. Typically, investors pay an annual administrative fee, plus all transaction fees. The annual administrative fee can run up to $100 a year, said Ted Benna, president of The 401(k) Association and creator of the first 401(k) retirement plan.

Charles Schwab & Co. Inc. one of the largest providers of brokerage-window options, charges commissions according to its regular fee plan, said Lance Berg, a company spokesman.

Increased responsibility

With the increased freedom offered by self-directed 401(k)s comes the additional responsibility to invest wisely.

A traditional 401(k) plan offers a worker some legal protection. Employers are required to select investment options in the best interests of their employees, according to the Employee Retirement Income Security Act (ERISA). If you lost money in a particular fund due to the fund manger’s incompetence, your employer might be liable for failing to prudently choose a fund.

With a self-directed 401(k), you may be solely responsible for any losses. That’s a concern raised by the Pension Rights Center, a non-profit public-interest group advocating for retirement-plan participants.

If you have no diversification, you are betting on one horse Kim Dignum, financial planner

Karen Friedman, director of the Pension Fairness Project, is concerned about where the fiduciary responsibility for self-directed 401(k)s ultimately rests. She says 401(k) plans are employer sponsored and the employer should maintain some responsibility.

Benna recommends to his employer clients that they ask workers choosing a self-directed 401(k) to read and sign disclosure documents saying they’re assuming full responsibility for their investment choices.

I believe with that, the employer washes their hands of the liability, he said.

The liability arguments may be economically, not legally motivated. For that reason, plans may not advertise self-directed 401(k)s heavily to their participants, says Trisha Brambley, president of Resources For Retirement Plans, Inc.

The (plan) vendor doesn’t make a lot of money (with) that option because often another firm provides the brokerage services, Brambley says.