(MONEY Magazine) – Few investors have been more shaken by the rash of mutual fund scandals than the 47 million Americans saving for retirement in 401(k) plans. One in every four dollars invested in mutual funds is held in a defined-contribution retirement plan. And for most investors, those accounts make up their entire financial nest egg outside of their home equity.

Unfortunately, unlike retail investors, most 401(k) participants are restricted in their ability to respond to the scandals because they have a limited menu of fund choices. They are trapped in their plans.

Most employers, meanwhile, have been slow to respond to the crisis. Few have booted the accused fund companies from their plans, and too many have yet to communicate with their employees about the scandals. That response stands in sharp contrast to many state pension funds, which have been quick to denounce the wrongdoing and to jettison sullied fund managers from their portfolios. But clearly, 401(k) investors can't afford to sit back and wait for their employers to wake up and do something. You need to decide what changes, if any, you'll have to make in your 401(k) portfolio. And you may also want to have some frank discussions with your boss about your plan. But before you do any of that, arm yourself with information. Here are 10 key questions and answers about the 401(k) fund fiasco.

[1] How do the fund scandals affect my 401(k) plan?

The full extent of the wrongdoing is not yet known. But so far 10 major money managers have been accused of allowing inappropriate trading in their funds: Alger, Alliance, Bank of America, Bank One, Federated, Invesco, Janus, PBHG, Putnam and Strong. (See the sidebar on the opposite page for some of the latest developments.) Your 401(k) plan could be affected by this in a number of ways. Most directly, it might include one or more of the funds known to have been used for market-timing purposes, such as Janus Worldwide or Putnam International Capital Opportunities. With some of the firms in question, we still don't know which specific funds were hurt. But these accusations taint any fund run by one of these companies.

Even if you don't hold funds managed by a company in trouble, you may have reason to be concerned. In addition to managing funds, many of these firms also run the 401(k) plans themselves, providing plan services such as 800 hotlines and record keeping. And in the background, Security Trust, a little-known firm that executed transactions for many plans, is being shut down because of its involvement in improper mutual fund trading by the Canary Capital Partners hedge fund. As a result, some 2,000 small and mid-size 401(k) plans may run into record-keeping disruptions or even blackout periods, during which investors won't be able to trade or contribute to some funds.

[2] Did I lose money in my 401(k) account because of the wrongdoing?

Probably not, and if you did, it wasn't much. In none of the fund scandals did anyone steal money from accounts. Instead, some investors, many of them insiders, simply grabbed more than their fair share of the fund's returns through improper trading. One method was so-called late trading, in which the parties bought funds at outdated prices after the market close. That's always illegal, and so far few companies seem to have been involved in it. A more common abuse was rapid-fire trading, in which an investor buys a fund and sells it within the next day or so to take advantage of small price movements. Frequent trading is not in itself illegal, but if the fund's prospectus specifically prohibits such trading, then allowing some investors to do it is a violation of the securities law. Still, even if you hold a fund that was improperly traded, the effect on returns was generally tiny--less than 1¢ on the dollar. Most fund companies have promised to reimburse investors.

[3] If I own a tainted fund in my plan, should I get out of it?

If your plan offers a broad choice of funds, the case for switching is strong. Even if the improper trading didn't cost you much money, these companies appear to have violated your trust and their fiduciary duty. And if other investors are yanking money out of a troubled firm--at Putnam, assets have fallen by $32 billion in the past month--it may hurt your returns by increasing costs and forcing the manager to sell stocks to raise cash. Perhaps most important, money managers' legal troubles may distract them from the job of making smart investment choices. At Strong, for example, founder Dick Strong has stepped down as both CEO and chief investment officer over this scandal, and it's hard to see how a company that was so driven by one man is going to manage a smooth transition. Since there are no tax consequences and no commissions when you switch funds in a 401(k) plan, why stick around to see if the new team at Strong can pull it off?

[4] My 401(k) offers funds only from a scandal-ridden fund group. Should I stop contributing to my plan?

That would be a big, big mistake. In the long run, the greatest risk to your retirement is not improper trading; it's not saving enough in the first place. Use this problem as an opportunity to lobby your boss to find a better 401(k) provider, one with a good reputation and low expenses. You will never have better leverage. Enlist other employees in your efforts.

[5] What should my employer be doing to protect my 401(k)?

The HR department at your company ought to be very busy right now. Under the law that regulates retirement savings plans, employers have a fiduciary duty to watch out for your 401(k) money. Employers that have a so-called bundled plan--one that uses a single fund family as record keeper and primary investment manager--with one of the disgraced fund companies should be especially concerned. "In the case of Putnam, [an employer] would be hard-pressed not to consider a move," says Ted Benna, a consultant who designed the first 401(k) plan. "With all the entities pulling money out, it's hard to justify why you are not." At the very least, says Donald Trone, director of the Center for Fiduciary Education, "you should have heard something from your employer by now--even if it's only to say they are looking at the problem."

[6] My employer says that it will take months to change the options in my 401(k) plan. How come?

Your boss isn't making this up. In the 401(k) industry, change comes in two speeds: slow and glacial. Say your 401(k) is a so-called open-architecture plan, which means it is administered by a third-party record keeper and offers funds from multiple families. Then it's comparatively easy for your employer to drop funds and substitute others. But it often takes three or four months for all of those changes to take place. That's because the plan trustees have to go through several legally mandated steps, including due diligence and advance notification of participants, says David Wray, head of the Profit Sharing/401(k) Council of America. Even so, Merck and Wal-Mart, among others, have already dropped Putnam funds from their lineups, while Standard Insurance and reportedly Microsoft are dropping Janus portfolios. Point out these good examples to your employer.

The process is even more protracted if you have a bundled 401(k) plan. Given all the record-keeping and computer systems issues, switching plan providers is a major undertaking that can take a year or longer. Says Sean Hanna, editor of 401kwire.com, an industry website: "If your plan sponsor decides today to switch your bundled 401(k) plan to a new provider, you may not see actual changes until 2005."

[7] Is the government protecting my 401(k)?

There are many regulators involved in 401(k)s, but no single agency monitors everything that goes on in your plan. The most important watchdog is the Department of Labor, whose job it is to make sure your employer lives up to its fiduciary duty to make sound choices when it hires a plan provider and selects investment options. The Securities and Exchange Commission regulates the mutual funds in your plan. But some 75% of 401(k) assets are actually invested in other types of investments, according to researchers Cerulli Associates, including stable-value funds, annuities, bank trusts and institutional funds (such as separate accounts and commingled funds). These may look like mutual funds and act like mutual funds--and they may be run by the same fund companies that are in trouble right now--but most are not directly regulated by the SEC. Bank trusts, for example, fall under the authority of the Office of the Comptroller of the Currency, while annuities are overseen by state insurance regulators. Have these "nonfund" funds had any trading problems? Hard to say, since they don't receive the same regulatory scrutiny as mutual funds.

[8] What happens if the company managing a fund in my plan goes under?

Your money is safe. If a fund company did go bankrupt, the assets would be handed off to another investment company to manage, pending the approval of shareholders. Your plan sponsor might go along with that move or choose a different fund that it deems a better fit for your 401(k).

[9] Can I sue a fund company for allowing improper trading in my 401(k) fund?

You probably wouldn't get far. As a 401(k) participant, you don't have the same shareholder rights that you have when you invest on your own, according to Mercer Bullard, a former SEC attorney and head of the advocacy group Fund Democracy. The 401(k) plan itself is the shareholder in the fund, so the plan--that is, your employer--has the standing to sue the fund companies.

[10] Will any of the proposed mutual fund reforms help 401(k) investors?

Yes and no. On the plus side, there are bills in Congress that would mandate improved mutual fund fee disclosure, such as brokerage and transaction costs, as well as better fund governance, which would clearly help all fund shareholders. But some proposals that may make sense for retail investors could be setbacks for 401(k) participants, at least at first.

Among the most troubling rules is one proposed by the SEC in December that would impose a uniform 4 p.m. (eastern time) cutoff on all fund transactions to prevent late trading. Problem is, 401(k) plans that offer funds from multiple fund families--some 80% of all plans--may not be able to meet that deadline. Typically, 401(k) plans allow participants to make fund transactions until 4 p.m., but the paperwork may take several more hours, as various middlemen determine the closing prices of the funds, move the money and update accounts. To meet the new deadline, many 401(k) plans would be forced to require participants to make trades by noon or earlier to get same-day execution. Or plan administrators may just decide to offer fewer choices and less trading flexibility in order to keep things simple. "Personally, I think it stinks," says Dallas Salisbury, head of the Employee Benefit Research Institute in Washington, D.C. "Instead of protecting me, the four o'clock rule denies me rights as a plan participant that I would have as a retail investor."

That may be true. But let's step back and look at the big picture here. There may be some temporary inconvenience to 401(k) participants, but the fact is, retirement investors should not be trading frequently anyway--and few of them trade at all. And in the long run, the ferociously competitive 401(k) industry is sure to come up with solutions for any new trading hurdles. Given how widespread improper fund trading has been, we obviously need strong measures to wipe it out. We're talking about our retirement, after all.