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Really, I'm trying to understand how 401k options are selected, who gets paid for selecting certain options, whether my employer gets a kickback for chosing certain options, whether somebody is making 12b-1 fees or sales loads or CDSC payments, how the administrator and brokers get compensated, etc.
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All of these are possible, but the primary reason for reasons for severe 401k constraints is that companies have been sued for allowing too much choice (i.e., employees had lots of options, traded their retirement accounts for a big loss and then sued the company for redress). An employer might feel safer wrt ERISA fiduciary liability by offering a small set of "safe" mutual funds (even if they are awful in terms of fees, mgmt, etc.).
This is really boring stuff, but fund managers and plan administrators have to worry about it:
IRS on fiduciary duty
From
Jackson Lewis:
"Historically, participant investment education has been a difficult problem. On one hand, 401(k) sponsors risk liability if they influence participants in the investment decision process. On the other, most participants lack the savvy to make decisions involving investment time horizons, modern portfolio theory or, in some cases, assessment of risk versus reward."
"...and perhaps exposure to liability -- for 'not saving participants from themselves.'"
So if you want your employer to allow self-directed options, you'll have to work through the issues in this
Findlaw article with HR.