Have you heard the story of "The Three Really Big Monkeys and the Fiduciary"?

Listen.

"Workers have a monkey on their back. That's why they're retiring to despair. Actually, it's a bunch of monkeys--- really big monkeys."   The storyteller is Brooks Hamilton, a career blend of benefits attorney and computer geek. If his name sounds familiar, it should. Mr. Hamilton has been the source of many columns. The foundation for our jointly written paper, "Reinventing Retirement Income in America" was his deep knowledge of how 401(k) plans worked--- or failed--- for most people.

"Monkey No. One is a simple question," he continues. "Do I join the plan? That monkey beats up 30 to 40 percent of the people. Waiting five, six, or seven years before you join still means you take a severe beating.

"Monkey No. Two is another question. 'How much should I contribute?' Many people join plans but contribute far too little. Even 401k plans with automatic enrollment put you in with too little.

"The plan sponsors are too timid. They don't have the courage of their conviction. So they put employees in at two or three percent of wages and guarantee failure. Worse, employees tend to assume what has been done is right when it isn't. Usually it's a small contribution to a money market fund."

I asked how many employees put too little money into their 401(k) plans.

"In really big groups, about 70 percent of the employees will under-contribute," Mr. Hamilton answered.

"Monkey No. Three is investing the money. In some plans the default investment is a money market fund. The legal argument is that the employer can't be sued because the employee can't lose money. The fiduciary auditors don't agree with this but that's what the lawyers say. The effect is that it commits the employee to failure.

"If the employee does make decisions", Hamilton continued, "he often does it from a menu of retail mutual funds. Typically, half of the funds shouldn't even be on the menus. And all of the funds probably have two to three times the expenses they ought to have, with half of the expenses legally hidden. The employee thinks he's getting a fair shake but Las Vegas might be better.

"Then there are the workers' choices. Check John Bogle's Congressional testimony. Basically, there is no evidence that the average worker has any skill."

Hamilton concludes: "Any one of these Really Big Monkeys puts a severe whipping on the employee. It's a very tough gantlet. If you deal with all three you're going to retire well. But if one or more beats you up, you're heading for (retirement) despair."

I asked how many workers survive the gauntlet.

"Let's start with a thousand workers. Of the thousand, about 15 percent won't be eligible for one reason or another. That takes us down to 850 workers.

"Of the 850 about 30 percent won't join. That eliminates 255 and takes the number of workers down to 595. That's RBM number one."

Mr. Hamilton figures that about 95 of the 595 will be "highly compensated"---those earning $90,000 or more this year. He figures they will contribute the maximum allowed.

"But 70 percent (of the 500 non-highly compensated employees) will contribute too little, too late. That knocks out another 350, leaving 245 workers who have survived the second RBM.

"Then there's RBM number three. How many workers achieve near-market results? Ninety percent won't. That takes 202 of 245, leaving 43. In other words, 43 workers in 1,000 succeed--- but the rest have been obliterated by a sorry gang of RBMs," Mr. Hamilton says.

Then he is silent, waiting for the proportions to sink in.

"Now ask yourself a question. If only 5 percent of the people can retire in dignity, can the Board of Directors, the investment committee, the trustees, the accountants, and all the providers claim they've honored their fiduciary duty?

"I say No," Mr. Hamilton answered.

Later in the conversation Mr. Hamilton puts the situation another way. He likens the fiduciary to a general: "If a general took an army of 1,000 into battle and returned with 50 survivors, leaving the rest as casualties on the field, what do you think would happen?"

Before I can answer he says, "The general would be court-martialed."

What Mr. Hamilton sees coming is worker rage as millions of workers realize the scope of the failure they are facing and the complacency of those responsible--- the fiduciaries. He calls it "a perfect legal storm."

I asked if there was any evidence of this coming legal storm.

"It has not escaped the attention of the plaintiffs' bar that a RICO violation will trigger triple damages and only requires that two or more people be involved in a conspiracy to enrich themselves by diminishing the well being of others," Mr. Hamilton noted. (RICO, passed in 1970, stands for Racketeer Influenced and Corrupt Organizations Act and was originally intended as anti-organized crime legislation.)

"Remember", he said, "ERISA (the Employee Retirement Income Security Act of 1974) imposes a fiduciary duty that is greater than anything previously defined in western civilization--- a duty of faithfulness, loyalty, and care."

Is there some overstatement here?

Perhaps. But when you consider that two-thirds of all retirees get at least half of their income from Social Security and that the Social Security Administration itself warns of future cuts in benefits, it isn't difficult to see a darkening horizon.

On the web:

NCPA study #248: Reinventing Retirement Income in America

Statement of John C. Bogle to the United States Senate Governmental Affairs Subcommittee, November 3, 2003 (see "Summing up: Earning a Fair Share of Stock Market Returns"

Club 401: Earlier columns on 401(k) plans