Among the most popular fringe benefits that companies added during the 1980s were deferred-compensation programs such as 401(k) plans.
Industry experts report there has been a threefold increase in the number of companies offering such programs, as more workers recognize they will need to augment their pension and Social Security income during retirement.
When the government established investment guidelines for pension plans in 1974, an area that was not addressed was self-directed plans such as 401(k) programs, says Robert Reynolds, president of institutional retirement services for Fidelity Investments.
But now the Department of Labor is in the final stages of adopting Regulation 404(c). In brief, the proposal defines what a company should do to pass along some of its fiduciary responsibilities to its employees.
The guidelines are designed to increase investment options, and ideally these choices will help careful investors make the most of their opportunities.
The proposal gives corporations the direction they need to provide more investment choices and greater flexibility for their employees, Mr. Reynolds said.
The regulation would propose that:
* 401(k) plans offer at least three diversified investment options, each with different risk and return characteristics. A common scenario probably would allow companies to meet this objective by offering separate stock, bond and money-market funds.
* Employees be permitted to transfer among the investment alternatives at least four times a year and more often among highly volatile investment options.
* Employers must give their employees sufficient information about the plan's investment choices.
In addition, companies that offer their own stock to employees could do so only as a fourth option. Company stock could not be one of the basic choices and could be included only if it were publicly traded and fairly liquid. The government says it will press companies that offer their own stock in such plans to give employees clear voting control of the shares in their accounts.
The critical part is that the companies have to communicate with the participants, keeping them informed of their investment alternatives, putting much of the responsibility onto the shoulders of the employee.
Mr. Reynolds estimates that under current 401(k) programs, 70 percent of employee funds are kept in what are called guaranteed investment contracts (GICs), which pay a set rate -- say, 8 percent -- for two to three years.
The Fidelity executive, whose firm stands to gain in the battle for deferred-compensation plan dollars when companies expand their investment options, maintains that it's not healthy to put all of one's eggs in one basket. He also warns that GICs are only as good as the companies that issue them.
Mutual funds, he says, give investors the capability of switching to multiple investment options simply by using an 800 number.
The government says its proposal is designed to create a framework within which individuals are free to do the best they can do for themselves. The guidelines, which could be in final form by summer and in effect 180 days after that, do not require employers to do the things the government wants.
But failure to comply will expose the employer to a potential liability as plan fiduciary -- the possibility that if an employee were unhappy over the plan's performance, he or she could sue.
Mr. Reynolds says that 60 percent of companies today are in compliance.