401(k)s don't offer index funds: Where is the outrage?

This is the retirement disaster that won't get much media coverage: A study conducted by researchers at the University of Illinois at Urbana-Champaign and the Federal Reserve Board shows (subscription required) that employers are increasingly turning toward pricey actively-managed mutual funds for their 401(k) plans rather than lower cost, better-performing index funds.

Only 11% of U.S. stock funds added to 401(k) plans between 1998 and 2002 were index funds. This in spite of the fact that there are volumes and volumes and volumes of research showing that buying actively managed mutual funds is just not a very good idea. For more on this, please read A Random Walk Down Wall Street and The Little Book of Common-Sense Investing.

The problem isn't just the employers and managers/brokers, who should be beaten if they're not offering index funds. According to The Journal, "A recent survey by Vanguard of plans for which that firm provides record-keeping services found that, though nearly all participants were offered a U.S.-stock index fund, only half invested in it."

Yikes. This latest bit of news is evidence of two things: 1.) Many investors really don't know how to invest for their retirement and 2.) The people who are supposed to be helping aren't making it much easier.