"It's the Second Revolution," M. Barton Waring said in a recent telephone interview. He was referring to changes in 401(k) plans that will probably be accelerated by the disappointments and disasters investors have experienced in the last two years.

Mr. Waring, a Managing Director at Barclays Global Investors, was the subject of a column last year. In it, he pointed out that the average return on defined contribution plans--- what you and I call our 401(k)--- was often two full percentage points lower than the return earned by defined benefit pension plans sponsored by the same company although the most recent evidence shows 401(k) plan participants did better as the market was peaking. Then, and now, he sees some major problems with the plans we've all come to love and cringe over.

I asked if he would explain the first revolution, for those who had missed it.

"Fifteen years ago the defined contribution world was a much smaller place. The investments were all in institutional funds, very much like pension funds. Then the big mutual fund houses came in and offered a package deal. They would provide the investments and do all the record keeping for free. They offered retail mutual funds that everyone recognized and could read about."

The result was the high cost mutual fund supermarket/casino/derby/smorgasbord that has become part of our daily lives. Plan sponsors would offer funds recommended to them by the fund companies, an occasional fund to please a company executive, and company stock. Lots of company stock. Instead of having an investment process for making sound portfolios, our 401(k) choices became a meld of corporate dictate and brand recognition.

"Today the wheel has turned around. The sponsors are going back to the institutional funds because they don't like the perception that employees are getting high priced funds.

"The basic target is bundling."

I asked if he would explain bundling.

"In the mid-eighties the pieces (of 401(k) plans) were all bought separately. There was investment management. There was a record keeper who verified who had what. There was an actuary. There was a master trust." He explained that all these parts had separate expenses that were largely paid for by the sponsoring company, just as they did with their pension plan.

Then the mutual fund companies offered a bundled plan.

In bundled plans, he explained, all of the plan expenses were included in the mutual fund management fee. Basically, the fund companies put retail priced funds into a wholesale market. They used the extra fee money to cover other plan costs.

As a consequence, costs were shifted from the employer to the employee. Unlike the employer with an unbundled plan, the employee never saw how much it cost to manage his plan. It was all buried in fund expenses that were seldom understood.

"Now the trend is going back to the unbundled solution. Basically, the plan sponsor doesn't know what they're paying for in a bundled plan and they want to know. So the mutual fund companies have to justify their expenses. Now they're going back and saying that plans must have so many dollars in (actively managed) mutual funds or they will have to charge for the other expenses."

What does Mr. Barton see in our future?

He tells us in a recent paper, "It's 11 P.M.--- do you know where your employees' assets are?"   In it, he continues to advocate ending the current brand recognition contest and replacing competing fund choices with pre-built portfolios at different levels of risk. Those portfolios, in turn, would be constructed with large doses of index and enhanced index funds combined with smaller doses of proven active managers. The combination would result in a dramatic cost and risk reduction--- and make our largest and most successful savings vehicle less of a lottery.