The enhanced plans, sometimes called "automatic 401(k)s," owe a lot to behavioral economics, which argues that people aren't the fully rational market participants that traditional economics supposes. Instead, their decision-making is limited by factors that can include a lack of self-control, laziness or a lack of knowledge. David Wray, president of the Profit Sharing/401(k) Council of America, an organization of companies that sponsor such plans, says one reason for the less than perfect participation in 401(k)s is workers' fear of making the wrong choices. "They have been told in the media that this is an important decision, and they're so intimidated they don't even join the plan. They're just uncertain, so they choose not to save," Wray says. "That's why auto enrollment is successful."

Automatic enrollment has been around since the late Nineties, but it lost some of its luster when it became clear that many employees who were enrolled automatically at a modest contribution rate, with the money invested conservatively, were still at the same savings rate and in the same conservative investment years later. Now, however, plan providers are linking it with automatic step-up and managed accounts, and the hope is that this will alleviate that problem.

In automatic step-up programs, employees commit in advance to increases in the percentage of their pay that goes into the 401(k), either once a year for a certain number of years or when they get a raise. "The evidence is that people are more inclined to increase their contribution rate in the future than today," says Lori Lucas, director of participant research at Hewitt. "If you ask them to increase it today and they say no, and then give them an opportunity to increase it next year instead, more often than not they are willing to commit to that. And they will follow through on that. When the time comes for the contribution to increase, they will allow that to happen." In fact, one study found that the average savings rate for a group of workers who made such commitments rose from 3.5% to 13.6% within 40 months.

Managed accounts are another feature that is attracting a lot of interest these days. The companies that provide managed accounts say that they can offset not only employees' fears of investing, but also their sometimes ill-advised investment choices. ProManage has been providing managed accounts to 401(k) plans since 1999 and Falk says on average, 75% to 80% of employees offered ProManage's services choose to use them. And when companies announce to employees that ProManage's services are available, they usually see 10% to 15% more workers sign up for the 401(k), he says. Schwab Corporate Services, which offers plan sponsors a program from GuidedChoice Inc. that combines advice and managed accounts, says that in the first year, participants who used the services of GuidedChoice more than doubled their savings rate, to 9.57% from 4.57%.

SO MANY CHOICES, SO LITTLE TIME

While 401(k) plan providers can arrange automatic enrollment or automatic step-up programs for plan sponsors, they typically bring in third parties to provide managed accounts, to avoid any conflict of interest. Many of the companies that provide managed accounts also offer education to 401(k) participants. In addition to GuidedChoice, Financial Engines Inc. of Palo Alto, Calif., provides managed accounts through The Vanguard Group and JPMorgan Retirement Plan Services. Morningstar Associates, a registered investment adviser and a subsidiary of Morningstar Inc., the Chicago-based investment information provider, is working with Wachovia Bank, T. Rowe Price Group and NYLIM Retirement Plan Services. (ProManage works directly with plan sponsors, rather than through providers.) The investment decisions that companies make on behalf of 401(k) participants are typically generated by proprietary asset allocation software.

EASE DOESN'T COME CHEAP

Schwab doesn't charge plan sponsors for the GuidedChoice program, but for the most part, managed accounts aren't free. The fees are paid by participants and come on top of the mutual fund fees they already pay. ProManage's fee is based on the amount of assets it manages for a plan, at 35 basis points for the first $100 million and 10 basis points for each additional $100 million. NYLIM's fee depends on the participant's assets and starts at 85 basis points on the first $10,000, declining to 65 basis points on the next $40,000, 45 basis points for the next $50,000, and 35 basis points for assets above that. Financial Engines' fee ranges from 20 to 60 basis points, depending on the amount of plan assets and the size of the participant's account.

How will those fees affect returns on savings of participants over the long run? "Clearly, any expenses that someone charges to a participant are dollars that they don't have in the marketplace earning a return," says Jeff Maggioncalda, president and CEO of Financial Engines. But he and other providers of managed accounts say that in spite of the cost, participants will benefit because managed accounts prevent them from making bad investment choices.

The two biggest mistakes that 401(k) participants make are putting too much money into low-risk and low-return investments like stable value funds and putting too much money into risky investments like company stock, Maggioncalda says. "You have a bunch of younger people who have all their money in the most stable investment and older people who have all their money in company stock. It's the reverse risk portfolio that you would want by age," he says. "Keeping people away from the extremes is the biggest value that we offer."

Automatic rebalancing, in which a participant's investments are brought back in line with the original asset allocation, is also becoming more widely available. A Deloitte Consulting survey showed that 35% of plans offered automatic rebalancing in 2004, up from 24% in 2003, and another 16% are considering offering it. Other changes reflect new regulations. Last fall, the Labor Department issued rules that promote automatic rollovers of 401(k) balances to IRAs. In the past, money filtered out of the 401(k) system when participants with relatively small balances took their savings in cash when leaving the job. The new regulations require that companies roll over into an IRA the assets of a departing participant with assets between $1,000 and $5,000 in a plan, unless the participant directs otherwise.

Experts say the way that participants receive their 401(k) assets after retirement is likely to evolve as well. Lump sums have been the customary method of distributing 401(k) assets, but that leaves participants with the difficult task of figuring out the pace at which to use their savings. Annuities, which provide a regular payment stream, are expected to make a comeback.

It's early days for the new 401(k) features, which are just starting to be widely adopted. But consultants and providers note that the changes push 401(k) plans a little closer to the defined benefit (DB) plan model, in which the employer made most of the decisions. "Automatic enrollment, automatic step-up, a managed account and the ability to purchase an annuity–is that not basically like a DB plan, except for [the money] coming out of the employee's pocket?" says ProManage's Falk.