The way that much of corporate America operates 401(k) programs is more than just a shame. It's possible that some of them are breaking federal law. Last month, Schlichter Bogard & Denton, a law firm in St. Louis, filed lawsuits against seven of the nation's biggest corporations alleging that their workers were charged millions of dollars in excessive 401(k) fees.

At the same time, New York Attorney General Eliot Spitzer is reportedly close to reaching a settlement with a major insurance company that sells and oversees 401(k) programs for taking undisclosed fees to promote certain mutual funds for a retirement fund for teachers.

What potential transgressions have attracted the interest of prosecutors and trial lawyers? A common 401(k) industry practice called revenue sharing is what's drawing fire. If you have a weird lineup of expensive and mediocre mutual funds in your 401(k), the culprit could be revenue sharing.

To understand what revenue sharing is, you have to appreciate how 401(k) plans are put together. Some guy in your human resources department didn't dream up your 401(k) menu. Nor does anybody in your company manage the plan. What typically happens is that a company selects a vendor to pull together a plan and then maintain it. The outside administrators include many of the nation's most recognizable mutual fund companies and brokerage firms, along with major insurance companies.

In pulling a plan together, the vendor often picks mutual funds that charge investors a 12b-1 fee, which I mentioned in last week's column. The 12b-1 fee was created more than 25 years ago to allow small mutual funds to generate money to advertise their existence. Today this pernicious fee is popping up everywhere, including 401(k) plans.

Here's a common scenario: The outside administrator will select more costly mutual funds with 12b-1 fees for a workplace 401(k) menu. In return, the anointed mutual funds will use their 12b-1 cash to, in essence, thank the administrator for picking it for a company's 401(k) lineup. Can everyone see the potential conflict of interest in these arrangements? With this undocumented 12b-1 windfall, the administrator can oversee the plan without billing the workplace for its services. That's the part many employers like.

But operating a 401(k) with hidden payments - and no accountability - should be unacceptable. In fact, the federal Employee Retirement Income Security Act, which oversees workplace retirement plans, requires that 401(k) fees be reasonable and fully disclosed. If the boss doesn't know who is getting what, how will he be able to say he's complying with this law? That's a question that I bet more trial attorneys are going to be asking soon.

Next week: More on 401(k)s.