General Motors is chopping the number of investment options in its 401(k) plans from more than 70 to fewer than 40 in a streamlining that the company hopes will improve employee participation in the plans.

Preston Crabill, director of employee benefits and human resource operations at GM, noted recent academic research that indicated having too many investment choices in a 401(k) plan can lead some participants to pick the most conservative investment option and discourage others from participating at all.

“We do believe that by reducing the fund lineup, we should see an increase in participation, an increase in the savings rate and also a better diversified portfolio on the part of our participants,” Crabill said.

Starting June 29, GM’s plan for salaried employees will offer 39 choices, down from 73, and the plan for hourly employees will offer 38 choices, down from 71.

At the end of 2006, GM’s 401(k) assets totaled $20.2 billion.

GM is removing from the plans all but two Promark funds, which are managed by a GM subsidiary, General Motors Investment Management.

The company is also removing some Fidelity mutual funds from the lineup but is adding institutional funds from Pyramis Global Investors, a Fidelity subsidiary. GM is replacing its current lifecycle funds, the Fidelity Freedom Funds, with lower-cost institutional lifecycle funds from Pyramis.

GM’s current default investment is a stable-value fund, the Promark Income Fund, and it is replacing that default with a balanced fund, Pyramis Strategic Balance.

“We see that as a much better default option,” Crabill said.

He added that while GM does not automatically enroll employees, in the wake of the Pension Protection Act, “we are looking at that very closely for our salaried employees, and we’ve talked with our union about auto enrollment.”

The plans’ new lineups will include just one single-stock fund, which contains General Motors stock.

A class-action lawsuit filed in March alleged that single-stock funds in GM’s plans related to GM spinoffs were “imprudent investments” that resulted in losses of hundreds of millions of dollars. The five spinoffs represented by single-stock funds were Delphi, DirecTV, EDS, News Corp. and Raytheon stock.

Crabill said the Delphi fund was dropped from the plans’ lineups at the end of last year and the other four single-stock funds were dropped in late March. Crabill said the removal of the single-stock funds was announced some time ago and was not a response to the lawsuit.

Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.