The real problem with 401(k) plans has nothing to do with the current market meltdown. These plans are set up to benefit employers and the mutual fund industry. They profit in every kind of market. It's employees who are the losers.

Current hearings before the House Education and Labor Committee are unlikely to solve the problem because Congress has traditionally been unwilling to take on the powerful securities industry lobby. Committee Chairman George Miller correctly observed that these plans are a "high-stakes crap shoot", but that is the tip of the iceberg.

The 401(k) system is rotten to its core.

Employers get paid off in the form of subsidies to select brokers and advisors who control the investment options in the plan. They, in turn, get paid by fund families and insurance companies which limit employees' investment options to costly, under-performing funds.

The fox guarding the hen house is the big winner. They have a vested interest in steering employees in the wrong direction. That's why there is no standardized investment education.

The fix would be simple and easy to implement:

* Full and transparent disclosure of all fees and expenses on a form approved by the Department of Labor;

* Limit investment options to pre-allocated portfolios consisting solely of low cost index funds, passively managed funds, Exchange Traded Funds and Target Retirement Funds (where the underlying funds are index funds);

* Require all participants to take a Risk Capacity Survey to determine the correct pre-allocated portfolio for their investment objectives and tolerance for risk;

* Require all advisors to these plans to be real fiduciaries to the plan and to provide objective investment advice to plan participants.

In recent testimony before Congress on the problems with 401(k) plans, the mutual fund industry was aptly described as the world's largest "skimming operation."

It's time for Congress to put an end to the pigs feeding at the trough.

Dan Solin is a Registered Investment Advisor and the author of The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read. His new book, The Smartest Retirement Book You'll Ever Read, will be published in the fall, 2009. Visit his website at Smartestinvestmentbook.com.