(FORTUNE Magazine) – Twenty years ago, when Ted Benna designed the first 401(k) plan in America, he knew he was on to something big. But he never imagined how big. In just two short decades, total assets in 401(k) plans have skyrocketed to nearly $2 trillion. The average account balance now stands at $50,000, and many balances stretch well into the six figures. Americans' love affair with the 401(k) is in full bloom.

But as good as these retirement plans are, Benna thinks they could be better--especially now that there's so much money at stake. The fees employees pay are too high, he says, and many people are trapped in plans with too few investment choices and no real control over their money.

For example, it used to be that employers routinely picked up their plans' administrative costs. No longer. Especially at large companies, those costs are being buried in the investment management fees, which come out of employee pockets. Compounding the problem, many workers still pay retail prices for their 401(k) funds. If their plans offered so-called institutional funds, which are meant for large accounts, they could be paying wholesale.

At the same time, employers have assumed the role of investment gatekeeper. They decide the number and type of funds that will be offered and who will manage the money--and they can change their minds at any time, forcing staffers to move all their money from fund group X to group Y. Employees may be told they're in the driver's seat, but they're made to steer with one hand tied behind their back.

Benna thinks he's found a way to help both managers and their workers realize the 401(k)'s original promise. He's signed on as a consultant to Persumma Financial, a Web-based provider of 401(k) plans to businesses. Based in Newton, Mass., Persumma has developed a sort of tax-deferred, self-directed brokerage account for 401(k) participants--a kind of do-it-yourself plan that tries to give choice and control back to employees and get the employer out of the retirement-plan business altogether. The company, launched in October, is majority owned by the Mass Mutual Financial Group; Nextera Enterprises and Knowledge Universe have minority stakes.

Instead of offering the usual dozen or so funds, companies that sign on with Persumma will give their workers access to virtually any stock or mutual fund out there. Sure, a handful of employers already let employees invest freely with some of their 401(k) money, through what's known as a "brokerage window," but with the Persumma plan this opportunity is unlimited.

Why should employers care? Because as things stand now, they risk being sued for not offering enough funds or the right funds, or for just about any reason at all if employees' accounts perform poorly. Persumma reasons that if employers get out of the business of selecting investment options, they won't be as liable for their workers' investment decisions.

Of course, more choice doesn't necessarily lead to better investments. It can just as easily lead to confusion. That's why the Persumma plan comes with advice from an independent consultant--currently Morningstar, the mutual-fund tracking firm. Neophytes can choose from a handful of premixed portfolios for conservative, moderate, and aggressive investors; the underlying funds will be picked and monitored by Morningstar. More confident investors can build their own portfolios from a Morningstar-recommended list of funds, ranging from small-cap value to international growth. Alternatively, employees can simply invest by themselves or with the help of their own financial advisors.

Benna says that once a company's workers have unfettered access to institutional and other low-cost funds, the annual expenses on a $50,000 account could drop from an average $500 today (consisting of around $100 in administrative fees and $400 in investment expenses) to as little as $200 or so. Persumma charges a flat rate per employee for the administrative portion, which it anticipates employers will pick up. But even if they don't, Benna expects total fees to be less than half of what they are today. At the very least, that should build a bigger nest egg for tomorrow.

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