401(K) PLANS Be wary of theft, experts advise

Officials are investigating thousands of cases of employer 401(k) plan abuse. How can workers protect themselves?
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By now, just about everyone has heard how thousands of employees at Enron Corp. lost their retirement savings last fall in 401(k) plans that were loaded with now-worthless Enron stock.
The employees could not sell the Enron stock in their 401(k) plans last fall while the Houston company was making changes to its retirement plan, but executives in the company were getting rich unloading the Enron shares in their personal portfolios by the bucketload.
However, what has gone largely unreported is that 401(k) plan abuses have been on the rise for several years.
Since the mid-1990s, the Pension and Welfare Benefits Administration, an agency in the Department of Labor, has opened 7,015 investigations into potential 401(k) plan violations and has recovered $145.6 million in 401(k) funds for employees' pension accounts.
Most of the violators have been employers who embezzled the workers' funds or kept the money and used it for corporate purposes rather than putting it into a retirement fund for employees.
Pursuing cases
In addition, the agency has pursued 162 criminal cases of 401(k) abuse through the Justice Department, which has resulted in the criminal prosecution of 106 people. The effort began in 1995.
"Our experience ... is that, when the employer has financial difficulty, that is when the 401(k) plan becomes a tempting source of funds and a source of loans," said Virginia Smith, director of enforcement for the Pension and Welfare Benefits Administration.
"If your employer is having financial difficulty, you have to be especially vigilant."
A participant in a 401(k) plan "owes it to himself to pay attention to the account, just as he would pay attention to his bank account or balance his checkbook every month," Smith said.
In the United States, 42 million employees make some form of contribution to a 401(k) pension plan in the hope of saving for a comfortable retirement.
This type of pension plan has grown rapidly in the last two decades. In 1984, only 7.5 million Americans were enrolled in a 401(k) plan. The 401(k) has pushed aside old-style pensions that were fully funded by a corporation and offered retirees a guaranteed monthly check based on years of service and salary.
Looking at assets
According to the U.S. government, there is $1.6 trillion in 401(k) assets in about 350,000 employer-sponsored plans.
The 401(k) plans are cheaper for companies to run, and relieve them of long-lived financial liabilities. The plans put a greater burden on employees to save while they work, and to invest wisely in the stock and bond markets.
And federal investigators have noticed that 401(k) funds can be fertile ground for financial manipulation by employers -- especially since many U.S. workers do not appear to regularly check their 401(k) statements or cannot recognize trouble signs in a plan.
This came to the attention of the pension agency in 1995, when it began receiving calls from nervous U.S. workers about the status of their pension contributions. The agency, which has 400 investigators nationwide, quickly found problems.
The mishandling of 401(k) money is most likely to take place when the economy is weak, such as now, when an employer may have trouble securing a bank loan or cannot collect revenue from a customer, according to Smith. And it is essential to catch the abuses quickly.
"If we find a problem, the first thing we do is try to get money restored to the plan," Smith said. "Our ultimate goal is to make the plan whole."
What law allows
An employee who contributes to a 401(k) plan is allowed by law to obtain a "summary plan description," or SPD, of the 401(k) plan, Smith said. This can be obtained from the company's human resources division or the administrator that manages the 401(k) plan for the employer. The SPD will tell a participant how benefits are calculated, when benefits become vested, how payments will be made and in what form, and how to file a benefits claim.
"If they don't get a copy of that, they should call us, and we will get a copy" for the employee, Smith said. The Labor Department has benefits advisers in its regional offices who can answer questions.
For employers, the Pension and Welfare Benefits Administration offers a "voluntary correction program" -- which basically means that, if a company admits to mishandling its 401(k) money and then restores that money to the pension plans, the company and its executives will not face civil or criminal litigation.
Since its inception in March 2000, the Voluntary Fiduciary Compliance Program has received 110 applications claiming restoration of $8.4 million to 401(k) plans.