Do the mutual funds in your 401(k) plan pass the close examination of a fiduciary--- the person or group charged with making fund choices that may affect the quality of your diet in retirement? We'll learn the good news--- and a surprise--- about some of the big ones in a minute.

But first, let me explain how Don Trone, founder of the Institute for Fiduciary Studies at the University of Pittsburgh, answered the question. He developed a scoring system that examined thousands of commonly owned funds. Each fund is given a score from 0 to 100 every quarter. Only funds that score "0" are deemed to have "passed" as "fiduciary grade." Funds that score from 0 to 25 are deemed "passed/appropriate." To be in that score range the funds had to rank in the top 25 percent for their peer group by several measures.

The measures include the expense ratio, the alpha or risk adjusted return, the Sharpe ratio (another risk adjusted measure), and trailing returns over the last 12 months, 3 years, and 5 years. Surprisingly, expenses aren't a major concern--- the screen only requires that funds not be among the most expensive 25 percent of their category.

To see how we were doing with the funds that hold most of our money, I checked Pensions and Investments magazine, the Chicago based trade journal for the money management industry. I found their annual lists of the top 100 equity funds, the top 100 fixed income funds, and the top 25 balanced/lifestyle/asset allocation funds in defined contribution plans. At the end of 2004 these 225 funds held a total of $739.2 billion in defined contribution plans. I checked the fiduciary score of the ten funds with the most assets in each category.

If your company has a plan that offers these leading funds, I've got some good news: Your employer has done a pretty good job of due diligence, making certain that the options available to you were of high quality. All ten of the largest fixed income funds had "passed/appropriate" scores. Nine of the largest balanced/lifestyle/asset allocation funds had "passed/appropriate" scores. And six of the ten largest equity funds had passed/appropriate scores. In other words, 25 of the 30 largest funds sampled were fiduciary appropriate selections.

And what's the surprise?

Four of the five funds with relatively poor fiduciary scores came from a single firm: Fidelity Investments. The funds are: Magellan (score 35), Contrafund (38), Low Priced Stock (27), and Freedom 2030 (28). The other fund is American Funds Washington (26). As a practical matter, you won't find many shareholders in Contrafund or Low Priced Stock complaining. Their returns have been stellar. It should also be noted that Fidelity, as the largest mutual fund company and the largest player in the 401(k) plan market, would probably show up with at least a few funds that didn't pass fiduciary muster.

Then again, perhaps we should expect more from the largest player in the industry. Fidelity Magellan fund, for instance, has $40.9 billion in 401(k) plan assets but had a fiduciary score of 72 in the first quarter of this year, the sixth consecutive quarter with a score over 25. As I pointed out in an earlier column, Magellan is now a 5 alarm fund, trailing its benchmark out to 15 years.

Similarly, many Fidelity-based 401(k) plans have both Fidelity Puritan (score: 0) and a battery of Fidelity Freedom funds among their choices. Puritan, a terrific fund however it is measured, has passed with a perfect score of 0 in all 18 quarters measured by Fiduciary Analytics. Compared to Puritan, the Freedom funds don't bring much to the party. They are just more marketing.

You can find out how the fund choices in your plan score by visiting the Fiduciary Analytics website at www.fi360.com/fa, getting a trial membership, and checking your funds. Be prepared, when you do that, to learn that many funds have better marketing than they have fiduciary scores. Putnam Voyager Y shares, number 32 among equity funds on the list, scores 40. AIM Dynamics, number 78 on the list, scores 54.

Another interesting finding: The class of shares you own (A, B, or C shares, etc.) has a major impact on fiduciary grade. Putnam Voyager A, B, and C shares score a dismal 82 while their Y shares score a mediocre 40. PIMCO Real Return Institutional shares score 11 but the B and C shares, which have higher fees, score 50 and 66, respectively. AIM Dynamics Institutional shares score 54 but their A, B, and C shares score 64, 68, and 78, respectively. If you work for a small company, its 401(k) plan may have these more expensive shares with poor fiduciary scores.

Most readers are likely to be pleased with their plan choice scores. If you aren't, let me make a suggestion. Print the Fiduciary Analytics reports and send them to the chief financial officer of your company, along with the URL to the ERISABLOG, a website that reports on the growing number of class action lawsuits related to defined contribution plans.

Fiduciary Scoring the Largest 401(k) Plan Funds

Rank ordered list of the ten largest funds in each major category tracked by Pensions and Investments and the fiduciary score of each fund. A score of "0" indicates a fund passed all fiduciary screens. A score of 1 to 25 indicates the fund was in the top 25 percent of funds in its category and is deemed "appropriate" as a plan selection. Scores over 25 bring a "watch" rating with concern increasing as the score rises. The Fiduciary Scores were created by Fiduciary Analytics, www.fi360.com/fa.

Fund Name (ticker)

DC plan assets (billions)

Average Fiduciary Score

Ten Largest Equity Funds

Fidelity Magellan (FMAGX)

$40.9

35

American Funds Growth (GFAFX)

$36.7

19

Vanguard 500 Index (VFINX)

$26.3

2

Fidelity Contrafund (FCNTX)

$25.4

38

Fidelity Low Priced Stock (FLPSX)

$20.3

27

American Funds Washington (WSHFX)

$19.3

26

Fidelity Spartan U.S. Eq. Index (FUSEX)

$17.9

11

Fidelity Growth Company (FDGRX)

$16.9

7

Fidelity Equity-Income (FEQIX)

$16.1

5

Fidelity Growth and Income (FGRIX)

$16.0

20

Ten Largest Fixed Income Funds

PIMCO Total Return (PTTDX)

$19.2

18

Vanguard Total Bond Index (VBMFX)

$ 5.4

9

American Funds Bond (BFAFX)

$ 5.0

4

Fidelity U.S. Bond Index (FBIDX)

$ 4.1

3

Fidelity Intermediate Bond (FTHRX)

$ 3.4

15

Fidelity Investment Grade Bond (FBNDX)

$ 1.9

6

T. Rowe Price High Yield (PRHYX)

$ 1.9

2

Diversified Core Bond (DICBX)

$ 1.5

17

American Funds High Income (AHTFX)

$ 1.0

11

PIMCO Low Duration (PLDDX)

$ 1.0

4

Ten Largest Balanced/lifestyle/asset allocation funds

American Funds Balanced (BALFX)

$13.8

4

Vanguard Wellington Inv. (VWELX)

$12.6

0

Fidelity Puritan (FPURX)

$12.2

0

Fidelity Balanced (FBALX)

$ 7.8

3

Fidelity Freedom 2020 (FFFDX)

$ 7.6

19

Fidelity Freedom 2010 (FFFCX)

$ 6.6

18

Fidelity Freedom 2030 (FFFEX)

$ 4.6

28

Fidelity Asset Manager (FASMX)

$ 4.5

14

Vanguard LifeStrategy Moderate Growth (VSHGX)

$ 4.3

11

Oakmark Equity & Income (OAKBX)

$ 3.8

0

Sources: Fiduciary Analytics, Pensions and Investments, Morningstar

On the web:

Fiduciary Insights

The ERISABLOG (site about 401(k) plan class action suits)

Earlier column on Fund Alarm and Magellan