By Dolores Kongf
The Boston Globe

Michael J. Egan, a Southwest Airlines captain, calls
himself a "couch potato kind of investor" who over the
years has been able to build a nest egg worth more
than a million dollars.

Now, the 53-year-old is ready to get off the couch and
try his hand at picking from among thousands of
stocks, bonds, and mutual funds in part of his 401(k).
For the first time next week, his employer-sponsored
plan is offering a so-called self-directed brokerage
account, giving him virtually unlimited choice.

"It does give me a little bit more flexibility to
`play' with my money, for lack of a better word," said
Egan, who will still keep most of his 401(k) money in
the dozen or so core mutual funds his plan currently
offers. "A little more risk wouldn't bother me for a
greater return."

In the latest trend in 401(k)s, a small but growing
percentage of plans are giving participants the chance
to invest their retirement money in almost anything,
through their own brokerage accounts. A natural
extension of the ever-expanding options available to
investors, 401(k) brokerage accounts - and related IRA
brokerage accounts - tap into the growing public
interest in the stock market and all things relating
to investing.

But not everyone favors giving employees more
responsibility for their 401(k) investments. With more
choice comes some potential pitfalls: The risk of
day-trading away your retirement money or otherwise
making bad investments, and the paralysis of having
too many options.

And there's a big unknown in this expanding area.
Who's liable if plan participants lose money or invest
in something that's inappropriate for their retirement
savings? Some pension rights advocates criticize this
latest 401(k) trend as a dangerous option for most

But Charles Schwab & Co. and others see things
differently. "The next logical progression in the
empowerment of participants is to give them broader
choice through self-directed brokerage," said Walter
W. Bettinger II, chief operating officer and senior
vice president for Schwab, which has seen its 401(k)
brokerage option business grow dramatically in the
last few years.

Schwab's Personal Choice Retirement Account is the
401(k) brokerage option that Egan and other
participants in the Southwest Airlines Pilots'
Retirement Savings Plan will have access to beginning
next week. PeopleSoft, Pacific Investment Management
Co., Morningstar Inc., and Excite@Home are among some
of the other companies offering Schwab's PCRA to their

In the last several years, the proportion of 401(k)
plans offering a brokerage option has grown from less
than 1 percent to between 5 and 11 percent, according
to data from consultants Hewitt Associates and
Spectrem Group, brokerage firms including Fidelity
Investments and Schwab, and the nonprofit Profit
Sharing/401(k) Council of America.

But pension rights advocates see brokerage plans as
another example of the erosion of the traditional
company pension, which features a defined benefit
backed by federal guarantees.

"A lot of studies show people think they know a lot
more about investing than they actually do," said
Karen Friedman, director of the Pension Fairness
Project at the Pension Rights Center, a consumer
rights group based in Washington. "If you lose your
retirement money because of a bad investment or the
market goes down, the individual is on the hook. Who
are they going to sue? Where's the protection?"

Because this expansion of what is also known as a
brokerage window is so recent, "no cases have come
down on this yet," said John Hotz, deputy director of
the Pension Rights Center. "The real issue with a
brokerage window is where does fiduciary
responsibility begin and, more importantly, where does
it end?"

The answer may lie in providing 401(k) participants
with as much information as possible, said Drew
Lawton, executive vice president for investment
services for Fidelity, which has seen its 401(k)
brokerage option business grow dramatically over the
last five years.
"If there was more case law in place, then people
would have more of a handle," said Lawton. "It's an
open question at this point. We're all a little bit up
in the air as to what could happen.

"We want people to do what's in their own best
interest for retirement," he added. "If self-directed
brokerage doesn't bring enhanced return over time,
then plan participants themselves will question if
they're doing the right thing. We really have to focus
on education, to make people aware of the
opportunities and the risks."

Aside from providing education, employers and other
plan sponsors may seek to put in such safeguards as a
ban on risky investments such as derivatives, a limit
on the portion of a participant's 401(k) that can be
transferred out of core mutual funds and into a
brokerage account, and additional fees for the
brokerage option.

The Southwest Airlines brokerage option, for instance,
will allow participants to transfer only 25 percent of
their 401(k) out of core mutual funds and into the
Schwab account, said Richard Doherty, director of
member benefits for the Southwest Airlines Pilots'
Association, which administers the employer-sponsored
plan. Trades within the 401(k) brokerage account will
follow Schwab's standard fee schedule. While there is
no limit on trades, "If I see somebody excessively
trading, I'll make them aware of what they're doing,"
Doherty said.

The 401(k) brokerage window at Fidelity also follows
the standard fee schedule for trades, but employers
may opt to charge participants $50 to $100 for making
use of the option, according to Fidelity's Lawton.

By Jan. 1, 2001, the state will be offering a
brokerage window for the first time in its Section 457
deferred compensation plan for government employees.
But details about which brokerage firm, fees, and
account limits have not yet been worked out, according
to Dwight Robson, spokesman for Treasurer Shannon P.
O'Brien's office.

A brokerage Individual Retirement Account works in a
similar fashion, with standard fees for trades usually
applying but without an employer or other sponsoring
organization to put safeguards in place.

The forces driving the increase in 401(k) brokerage
accounts - increased investor sophistication, demand
for more choice, and growing interest in the stock
market - also appear to be affecting the IRA brokerage
business, if Fidelity's experience is an indication.
Robert Corcoran, Fidelity's vice president of
retirement product development, said that for the
first time, as of the first five months of 2000,
there's a 50/50 split in where new IRA money flows -
with half going into individual stocks and half into
mutual funds.

Historically, most new IRA money has gone into mutual
funds, not stocks, Corcoran said. Last year, it was a
60/40 split, with 60 percent into mutual funds and 40
percent into stocks. And in 1998, it was an 80/20

"We've seen sort of an interesting phenomenon develop,
really, over the last two years," Corcoran said.

But using a brokerage account for retirement money may
not be what everyone wants, or needs.

Dallas Salisbury, president of the Employee Benefit
Research Institute, a private nonprofit group based in
Washington, said the institute has long offered a
401(k) brokerage window to its employees.

Counting the current 25 or so employees, and those who
have left over the years, "It's probably a total of 50
employees who had the option of using the brokerage
window. In all those years, only one person chose to
do it," said Salisbury. "It's just not what
individuals are interested in spending their time

Brian FitzSimons, chairman of the retirement plan
committee for the law firm Arter & Hadden LLP and
managing partner of the Cleveland office, advises
against the brokerage option, even though the firm was
one of the first to sign up with Schwab's PCRA.

"I really discourage our staff and everybody from
doing that. If you really think you're that good at
this game, change jobs," he said.
As a result, out of 1,144 total participants in the
firm's 401(k) plan as of March 31, 2000, only 37, or 3
percent, have the brokerage account. And out of the
$94 million in total plan assets as of that date, only
$3.9 million, or 4 percent, was in the brokerage
option, according to FitzSimons.

Nonetheless, he said, "I do have some people who think
they are God's gift to investment."

While FitzSimons doesn't put himself in that category,
he recently opened up his own 401(k) brokerage

Now that he's 53, FitzSimons is using the account to
reduce his exposure, taking some money out of stock
mutual funds in the 401(k)'s core menu and putting it
into individual bonds to hold to maturity. He said he
didn't want to use the bond mutual fund in the core
selection because of the interest-rate risk that could
affect the fund's value.

Egan, the Southwest Airlines captain who lives west of
Boston, said he's generally a buy-and-hold, moderately
aggressive investor who has been happy with the
performance of his 401(k) through the core mutual
funds. Much of his nest egg comes from his Southwest
profit-sharing plan he has been in for more than 20

Nevertheless, there's "nothing like having control of
your own money." He may use the 401(k) brokerage
account to buy some beat-up stocks he's been
interested in, such as Disney, Coca-Cola, or Boeing.
"They're things that I know about."
But Egan knows his limits, as he jokes: "How do you
make a pilot a millionaire? Give him a billion