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Saturday, December 18, 2010
New Worries for 401(k) Investors 191 investigations into 401(k) fraud and theft, and secured 20 indictments
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Retirement savers have already learned how much damage the markets can do to a nest egg. But for anyone with a 401(k) plan, stock market performance may be overshadowed by other worries: fraud and theft.
In the last three months, the Labor Department has launched 191 investigations into 401(k) fraud and theft, and secured 20 indictments — a whopping 43% more than the department has secured annually, on average, since 1995. The millions at stake in recent cases may seem small in the context of the $3 trillion 401(k) market, but observers say the indictments point to larger issues in the 401(k) marketplace, from lack of oversight and an understaffed enforcement agency to the larger risks that have shifted over time to individual participants. The cases, says Brandon Reese, deputy director of the office of investment at the AFL-CIO, "expose a more systemic problem in the defined contribution retirement system."
The Labor Department beefed up its enforcement efforts this fall in response to growing indications of trouble with retirement plans. There were more reports of fraud, said Phyllis Borzi, the assistant secretary of the Employee Benefits Security Administration, the division of the DOL that's leading the charge. There were more cases where the perpetrators apparently intended to keep the stolen money, as opposed to the more sympathetic case of a struggling business owner juggling funds to meet immediate business needs. And the department is seeing more repeat offenders — perpetrators who have raided employee benefits plans two or three times before, says Jeffrey Hinman, EBSA's deputy director for criminal enforcement. These, and other "badges of fraud," like behavior that went on for a long time, or a perpetrator who lied to employees about what was happening with the plan, make a criminal case, as opposed to a civil one, he says.
Given the recent economic climate, the increase in cases is not entirely surprising. In tough times, employers are more likely to raid their employees' retirement funds, observers say, whether for personal gain, or to stretch to cover business expenses. This is especially true at small, private companies, where 401(k) plans are often run by a single person, like the company's president or accounts manager. "In a larger setting, you have more eyes on the plan," says David Certner, legislative policy director for the AARP. Publicly-traded companies also face stricter regulation on their accounting procedures under the Sarbanes-Oxley Act.
The Labor Department's investigations touch fewer than one out of every 2,600 of the 401(k) plans nationwide, and an even smaller fraction of the 60 million participants. It seems so small to some that the department has been criticized for spending time and money on such cases.
Warning Signs
So what does it take to catch a 401(k) thief? It's easy — if you check your account balance regularly and read the statements you get in the mail, says Scott Holsopple, the president of Smart401k, a web-based retirement service for retirement plans. Make sure you know how much money should be flowing into your account and how it's supposed to be invested. "If you're actively involved, it's going to be a lot harder for your employer to take money from you," Holsopple says.
The Labor Department's top 10 warning signs:
1. Your 401(k) or individual account statement is consistently late or comes at irregular intervals
2. Your account balance does not appear to be accurate
3. Your employer failed to transmit your contribution to the plan on a timely basis
4. A significant drop in account balance that cannot be explained by normal market ups and downs
5. 401(k) or individual account statement shows your contribution from your paycheck was not made
6. Investments listed on your statement are not what you authorized
7. Former employees are having trouble getting their benefits paid on time or in the correct amounts
8. Unusual transactions, such as a loan to the employer, a corporate officer or one of the plan trustees
9. Frequent and unexplained changes in investment managers or consultants
10. Your employer has recently experienced severe financial difficulty
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Researched/Posted by:
Poor Richard 2011
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12/18/2010 01:38:00 AM
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