(FORTUNE Magazine) – EVER FEEL AS IF retirement planning is an Alfred Hitchcock movie, and you are the innocent man getting buzzed by a low-flying airplane? To keep your company pension alive, you've had to dodge the strafings of layoff after layoff, while ominous rumblings about Social Security have droned from Washington like the ''Funeral March of a Marionette.'' But so far you've hung tough, and hey, you've got one more trick in your briefcase -- that 401(k) savings plan, right? Once a curiosity with a name that echoed the banter heard on CB radios, the 401(k) has developed into the last best hope for financial security in your golden years. As corporations continue to shift the cost of retirement onto employees and Uncle Sam clamps down on retirement benefits, experts say that 401(k) plans should expand to account for about half of baby-boomers' nest eggs by the time they start to retire. But your plan may fall far short and leave you stuck unless your employer greatly improves its 401(k) and you, the employee, do a better job investing the money put into it. Robert L. Reynolds, head of defined-contribution business at Fidelity, the mutual fund titan, says, ''Tremendous progress has been made in the 401(k) market, but there is a long way to go.'' Measure the distance in country miles. Many of today's plan participants are overly conservative in allocating their investments. That alone can easily make a difference of $1 million or more in what a middle manager will have upon retirement. Many 401(k) plans are also poorly designed, offering few investment options, little flexibility in switching among securities, and sketchy information on performance measures and expenses. Figuring out whether you are paying too much for the services your 401(k) provides is nearly impossible. Reason: Prices are packaged with more twists than the Kamasutra. A study by Dalbar Surveys, a Boston research outfit, found that fees for various services were bundled in over 80 different ways. An incredible 78% of employers who sponsor 401(k) plans did not even know what investment management expenses their plans incurred. Says Louis S. Harvey, president of Dalbar: ''Employers really don't know who the best providers are or who the lowest cost provider is.'' If the sponsor doesn't know these crucial facts, who is protecting the employees' interest? Christened after the section of the Internal Revenue Code that sanctioned it in 1978, the 401(k) allows employees to shift part of their salaries, before taxes, into various investments, typically mutual funds or mutual fund-like instruments, which the employee chooses from a menu provided by his or her company. Usually the employer matches part of the employee's contribution, commonly kicking in 50 cents for every worker dollar contributed up to 6% or so of salary. Once in the plan, the investments can grow unshorn by income taxes until the employee reaches retirement age and lights out for the fairway at Jackson Hole. Unlike traditional defined-benefit pension plans, which guarantee payments based on years of service, the 401(k) guarantees nothing. Its returns depend entirely on how much money goes in and how well it is invested. Because 401(k) plans are comparatively new, even the best of them may account for a relatively small piece of the retirement pie for today's 65- year-olds. But the times are changing. After only a decade of growth, 401(k) plans already hold about $290 billion in retirement dollars, or some 14% of private pension assets. According to Access Research, a Connecticut firm, assets in 401(k) plans should grow about 15% annually for at least the next five years, close to twice the rate of other kinds of private pension plans. Says Ted Benna of Nobel Lowndes, one of the earliest plan designers: ''The 401(k) is likely to become the primary broad-based retirement vehicle by the turn of the century.'' THAT MEANS the plans' quality is critical. Those that are too restrictive, or ill-equipped to handle employees' requirements, may wind up delivering far lower returns than workers need for retirement. Until just a few weeks ago, employees at steelmaker Nucor were working with no defined-benefits plan, just a profit-sharing plan and a poorly devised 401(k) that offered only one investment choice: a low-yielding guaranteed investment contract (GIC), a fixed-income instrument that typically pays no more than an intermediate-term bond. Nucor is now signing on with Fidelity and will offer employees seven investment options, including the Magellan fund and the highflying Fidelity Contrafund. Tim Perrine, 43, a 12-year Nucor veteran, never focused on his retirement plan, partly because there wasn't much he could do about it, but now he feels empowered. Says he: ''With this new plan, I'm only limited to what I want to do, and then I have no one to blame but myself.'' Even as plans modernize, participants face high hurdles in their bid for respectable returns. Expenses appear likely to eat more and more into investment performance. Operating costs include fees for plan design, payroll deductions, record keeping, trustee services, compliance with regulators, investment management, and employee communications. Says Dalbar's Louis Harvey: ''It is possible that a plan could be costing as much as 3% of assets per year.'' That would knock down the expected long-term return to 7% a year on stocks and 2% on bonds, before inflation. USUALLY companies split the cost of the plan with employees. GE, for instance, pays just about all expenses except for investment management. But companies are increasingly passing the entire burden along to employees. As of this year, Warner-Lambert workers pay all the costs of running their plan, including record keeping, information processing, and administration. It hardly seems unreasonable to ask workers to fork over the expenses. What should irk employees is that they are picking up more of the tab but get little or no say over the most important elements of the plan, such as which money managers to use or which types of mutual funds to offer. Processing delays shave another sliver from your retirement package. Investors in mutual funds get quick execution of trades, usually the same day, thanks to Securities and Exchange Commission regulations as well as the sophisticated computer systems of big mutual fund companies. But the execution of transactions for 401(k) plans can take weeks or months. Jeffrey Miller, head of Shearson Lehman Retirement Plan Services, is especially sensitive to the time delay in processing 401(k) payments. Miller left his law firm to join Shearson in October 1987 -- just before the stock market crash -- and cashed out his 401(k). But his firm was on a quarterly processing cycle, so his trade wasn't executed until year-end -- after the market's fall. Says Miller: ''I ended up with 25% less than what I had when I left my old job.'' Delays can prove costly when the market is rising too. With most plans, after the 401(k) contribution is deducted from your paycheck, it moves to a money market account where it collects interest while awaiting the final move into a mutual fund. That low-interest layover can penalize returns. At Cincinnati Gas & Electric, 401(k) contributions are deducted weekly but invested monthly. A popular investment choice among plan participants is the Fidelity Equity Income Fund, a public mutual fund, which over the past three years has earned an average annual return of 9.7%. But Cincinnati Gas & Electric employees who invested in that fund through their 401(k) received an average of only 8.7%. The difference results from the layover in a money fund. Cincinnati Gas & Electric's retirement plan managers say they are thinking about shortening the delays. Probably the most urgent need among 401(k) participants is for financial advice. Companies have been reluctant to give it, however, because under the law that increases fiduciary responsibility, which is precisely what they are trying to avoid. The 401(k) investment managers cannot help much either because their advice might be considered a conflict of interest. If, for example, a firm like Fidelity or Vanguard advised plan participants to switch from a money market fund to a stock fund, critics could charge it with trying to collect bigger management fees. Acting without benefit of counsel, most employees allocate too much of their contributions to bonds and to those low-yielding GICs. Employees would be more aggressive if they were armed with better information and their plans were more flexible, argues Reynolds of Fidelity. Unfortunately, most 401(k) plans still restrict trading more than investors in an ordinary mutual fund would tolerate. At Warner-Lambert, for instance, investors can change their allocation among funds only twice a year; and unless a 401(k) offers publicly listed mutual funds, getting essential information that is provided to mutual fund investors as a matter of course is like the search for the Grail. Such information includes the rate of portfolio turnover, the name of the investment manager, and the expense ratios of the funds you are putting your life savings into. Some companies are making progress: GE has an 800 number that employees can call to get security prices or account balances. Using the phone's keys, workers at GE can change allocations up to six times a year. IBMers can tickle the PC keyboard to change their payroll deduction and can change investment options on existing balances every Thursday. Says Don Sauvigne, manager of IBM's retirement plans: ''A 401(k) has to be sophisticated, attractive, and easy to use, or people won't put their money into it.'' The Department of Labor, which monitors 401(k) plans, suggests that companies provide at least three choices, not counting company stock, but many businesses fall short. A recent survey by Hewitt Associates, a Lincolnshire, Illinois, benefits consulting firm, found a quarter of plans offering two alternatives or fewer. Employees at Tyson Foods in Springdale, Arkansas, are given a choice like Hobson's. They may put their money in GICs or nothing. Until 1992, Johnson & Johnson offered only its own stock, a common stock fund, and a GIC fund. J&J's investors have about 63% of their assets in GICs, well above the typical allocation. That largely accounts for why the plan's three-year average return lags behind that of 401(k) plans in general. According to Performance Analytics, a Chicago investment consulting firm, the median annual rate of return for plans nationwide over the past three years has been 15%, vs. 13% for J&J. EVEN AS SOME PLANS encourage investors to be overly conservative, others push them to take undue risks. Anheuser-Busch has three options in addition to a company stock fund. Although two of the choices are short-term and medium- term fixed-income funds, participants have a beer belly full of Bud stock -- 86% of assets. That's not entirely by choice: To qualify for the matching contribution, participants must allocate at least half of what they contribute to the 401(k) to Anheuser-Busch shares. In addition, all of the brewer's matching contribution is in the form of company stock. That kind of concentration in a single stock is the very opposite of sound investing. William Rammes, vice president of human resources for Anheuser- Busch, counters that the impressive showing of his company's shares -- a 27% annual rate of return over ten years -- justifies the employees' allocation. Says he: ''We believe our performance over the past decade has shown their confidence to be well placed.'' Even so, no trend lasts forever: Anheuser-Busch stock has gone flat in the past year. Ford employees are learning the perils of underdiversification. Despite having five investment choices, their overall plan has lost an average 2.3% annually over the past three years, mainly because the biggest block of assets in the 401(k), Ford stock, has performed like a clunker, losing an average of 12% annually since 1989. Says Albert Golly, a New York City investment adviser: ''Some people say that they have a soft spot in their heart for their company. But large concentrations in company stock usually means the soft spot is in their head.'' Many experts feel that three choices are too few. Plan designer Ted Benna reckons that a 401(k) with six to ten choices makes more sense. Since companies cannot be sure that they are picking the best funds for employees, he reasons, they should provide as many choices as possible and let the investors' money do the walking. Why not offer a small-stock fund? Dow Chemical's small-company offering has turned in big-time profits, returning over 63% in 1991 and 27% on average for the past three years. Household International revamped its plan and saw improved results almost immediately. In 1988 its 401(k) investors had three options: company stock, GICs, and an equity mutual fund. About 59% of the plan's net assets were in company stock, partly because matching contributions automatically went into it. Nearly 33% of assets were in GICs, and just 8% in the stock fund. Last year Household expanded its plan to include five Vanguard mutual funds. Already investors have scaled back their exposure to Household's stock by seven percentage points. PepsiCo went one step further last August: Participants in its 401(k) used to choose among a fixed-income fund, a PepsiCo stock fund, an equity income fund, and an S&P index fund. But investors can now trade individual stocks, bonds, or mutual funds through a discount brokerage option as well. Providing all that variety costs money, of course. Pepsi doesn't match employee contributions. New regulations promulgated in October by the Department of Labor should marginally improve the employee's lot. In exchange for limiting the employer's liability if the employee makes a bad investment decision, the new rules require at least three investment options with materially different risk and return characteristics, and slightly increased disclosure. Employees are also supposed to receive sufficient information to make sound investment decisions. The problem: Nothing in the regulations directly addresses employee education, and no one knows what constitutes sufficient information.

Meanwhile, competitive forces are at work. Big mutual fund families like Fidelity and Vanguard, with their strong customer focus and dazzling array of services, have been steadily taking business away from banks, insurance companies, and other institutions that used to be the main providers of pension fund services. But now the old guard is fighting back. Insurance companies have been offering enhancements such as automated voice response on telephone inquiries from plan participants. Sound advice may be on the way too. Wielding a special dispensation from the Department of Labor that relieves it of conflict-of-interest limitations, Shearson Lehman Brothers now hawks itself as investment manager and professional financial counselor for individual 401(k) participants. Copeland Cos., a 401(k) plan broker that is a subsidiary of Travelers, is offering a program called Access that's being sold to sponsors of existing 401(k) plans. Armed with laptop computers, Copeland's financial advisers are ; signing up plan participants one by one, using special software to devise the best asset allocation for that individual. Once a year Copeland contacts each employee to suggest changes or offer new ideas. YOU NEED NOT WAIT for the market to come to you to improve your odds for a comfortable retirement. Unless your plan offers public, open-end mutual funds, you will probably not be able to get such vital information as the portfolio turnover rate and the name of the person who runs the money. But most benefits administrators will provide you with information about expenses and performance, if you ask them. Use this information to make sure your assets are allocated properly. Unless you expect to retire soon, you should be heavily invested in equities. If you have a large balance in company stock or if you have too few choices in your plan, borrow against your 401(k) balance and invest the proceeds in an equity fund within an IRA account. Complain if you find your plan inadequate. Back in the good old days of paternalistic corporations, you didn't have to worry too much about retirement because, one way or another, your employer would provide for you. But today, friend, you're increasingly on your own, and the buzz of that low-flying plane grows ever louder.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: HOWARD JOHNSON & CO. CAPTION: THE GROWING DEPENDENCE ON 401(k) PLANS These four main sources of retirement income will increasingly be dominated by the 401(k) plan. The proportion contributed by pension plans should shrink as high rates of employee turnover lead to leaner benefits.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: ACCESS RESEARCH CAPTION: WHERE EMPLOYEES PUT THEIR MONEY. . . AND HOW THEY'VE DONE Most employees have been backing a loser. Guaranteed investment contracts attract the most employee dollars, but retirement assets perform much better when invested in stocks.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: COMPARE YOUR 401(k) WITH THESE